Should Canada run modest deficit to help job growth?

“A new report issued by the C.D. Howe Institute says the federal government could create tens of thousands more jobs in the next three years if it stopped worrying so much about a tiny deficit and decided in favour of some stimulus spending,” a Canadian Press article wrote. The article posted on CBC News’ website yesterday continued, “The report written by McMaster University economics professor William Scarth argues that keeping the deficit at 0.5 per cent of GDP for the next three years could lower the unemployment rate by 0.4 per cent. That would amount to about 75,000 additional jobs if the increase in government spending were done efficiently, such as on infrastructure. Coincidentally, the Canadian economy has created only 72,000 jobs over the past 12 months. The report notes that such a change in strategy would mean keeping the federal deficit at about $10 billion over those three years, but Scarth argues that is insignificant economically because it would mean missing the stated target of reducing national debt-to-GDP to 25 per cent by 2021 by a single percentage point.” Read the full article here.

Economy to reach “full capacity” mid-2016, speculates Canada’s central bank


“Bank of Canada holds interest rate at 1% – again,” reads the headline for Pete Evans’ article posted on the CBC News website yesterday.

“Canada’s central bank decided to keep its benchmark interest rate at one per cent today, the same level it has been at for almost four years,” Evans writes.

Evans continues, “The Bank of Canada announced in its latest policy decision on Wednesday that it will keep its target for the overnight rate — the yardstick against which most consumer loans are based — steady at one per cent.

Although most economists were expecting no change in the rate, the choice of wording is often closely scrutinized to see if the central bank is leaning toward a rate hike or a cut, if and when it does decide to act. Instead of suggesting rate hikes are in the offing, the bank softened its tone and suggested it’s in no hurry to hike rates if and when it chooses to act. ‘The bank is neutral with respect to the timing and direction of the next change to the policy rate, which will depend on how new information influences the outlook and assessment of risks,’ the bank said.” Evans also points out in his article, “The economy is expected to reach full capacity around mid-2016,” a quote from a Bank of Canada statement. Read the full article here.

Positive economic news indicates US interest rates to rise

“A suite of positive economic news this week makes it more likely that the U.S. will raise interest rates sooner than most experts have been anticipating,” Pete Evans wrote in a CBC News article late last week. Evans continued, “On Thursday, the U.S. Commerce Department unveiled data showing the American economy added another 288,000 jobs in June. That’s the fifth straight month that the figure has come in better than was expected, and the strong job gains are pushing the stubbornly high unemployment rate lower. ‘Since February, this has now become a textbook jobs expansion,’ said Patrick O’Keefe, director of economic research at the consultancy CohnReznick. ‘It is both broad and accelerating.’ America’s jobless rate is now at 6.1 per cent, the lowest it’s been since September 2008, which is before bank failures such as Bear Stearns and Lehman Brothers kicked off a worldwide recession from which the global economy is still recovering.” Read Evans full article here.  

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