FX168 Financial News (North America) News David Rosenberg (David Rosenberg), founder and president of the independent research company Rosenberg Research & Associates Inc., conducted research on the Canadian economy. He pointed out that the decline in the Canadian economy and the decline in productivity mean that the Bank of Canada should cut interest rates without considering whether the Federal Reserve will cut interest rates. #2024宏观展望 #

According to Rosenberg, the Bank of Canada is so indifferent to the state of the Canadian economy. Rosenberg pointed out that the level of excess capacity is increasing month by month, inflation has turned to deflation, and the economy (measured by actual per capita output) is shrinking at a rate of 2 percentage points per year. However, at a time when the macro landscape is burning, the Canadian government is not doing anything.

Rosenberg said that in the past year, corporate bankruptcies surged 87%, reaching the highest level at the peak of anxiety during the 2008 global financial crisis. The number of people entering the labour market and not finding a job in the past year was almost double the number of people who did. This led to a year-on-year surge of over 20% in the number of unemployed people.

Rosenberg pointed out that concerns about the re-emergence of a housing bubble should now be dispelled, because housing sales, which were once hot in the Greater Toronto area, fell 3.4% month-on-month in April, and lost land every month for the past three months, down 5% from the same period last year. At the same time, the number of new homes increased 47% over the same period last year. This new pattern of demand and supply has created conditions for real estate prices to stabilize.

Rosenberg said that now, as housing costs begin to stabilize in real time, its inflation effect will soon subside from the consumer price index data, because Canada's overall inflation rate (excluding the housing component) is running at a rate of 1.5%, disappearing from 3.9% a year ago and 6.6% two years ago.

Rosenberg pointed out that if you think the Bank of Canada cannot cut interest rates without the help of the Federal Reserve, then you are wrong. This happened in 1996-1997, 1999, and 2003-2004. For example, in early 1997, due to tight budgets, the Canadian economy was on a different path from that of the United States, the overnight interest rate in Canada fell to 3%, while the Federal Reserve Fund rate remained at 5.5%.

Rosenberg believes that the Canadian dollar will depreciate; during these two previous monetary policy differences (1999 and 2003), it took almost $1.5 to buy a dollar. The economy needs to be stimulated, and currency depreciation is a key factor in easing domestic monetary conditions. Furthermore, Canada's competitiveness is very poor. Productivity growth is negative, and capital deepening has not occurred at all in the past 10 years, so much so that the unit labor cost in dollar terms has increased by 5 percentage points year over year, which is very bad compared to the 1.8% trend in the US.

Rosenberg believes that Canada needs a weak exchange rate as a continuing pillar to adjust the cost structure of the Canadian economy in line with the US and curb the trend of net direct investment outflows.

Rosenberg pointed out that this is why the Canadian dollar is still in a basic bear market, and why the reaction of the Canadian dollar is so lackluster even during the period when oil and industrial commodities are rising together. This is not because the “terms of trade” effect has failed, but because the continued decline in domestic competitiveness compared to the US has weakened this effect.

In other words, Rosenberg pointed out that Canada must lower international prices to protect the Canadian economy's share of the global export market, and in the process, the country was forced to accept wage cuts, and there are no measures in the recent federal budget to address this long-term lack of competitiveness.