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FILE PHOTO: A Canadian dollar coin, commonly known as the “Loonie”, is pictured in this illustration picture taken in Toronto, January 23, 2015.
US government spending drives growth as Canada flatlines
The US economy is growing much faster than Canada’s – while north-of-the-border GDP has been flat for months, the Americans posted a 4.9% growth rate in the third quarter.
What accounts for the difference? Experts point to higher US spending – both public and private – as well as lower debt loads. Canadians carry the heaviest household debt in the G7. The country is also, of course, suffering from a brutal housing crisis that is showing no signs of abating.
US growth is expected to slow by next year, while Canadian growth is expected to eventually pick up. But any growth right now carries concerns that it will drive up inflation as central banks in both countries – who’ve recently held interest rates steady – struggle to hit their 2% inflation benchmark.
Both President Joe Biden and Prime Minister Justin Trudeau are struggling in the polls and will be watching the numbers closely ahead of elections in which pocketbook issues will, as always, be important for voters.
Bank of Canada Governor Tiff Macklem
Are Americans and Canadians in for a soft landing?
As hopes for dodging a recession grow amid continuing affordability struggles, central bankers in the United States and Canada may be settling into a familiar pattern of cautious optimism.
Annual inflation in Canada dropped to 3.8% in September, well above the 2% target. Yet, on Wednesday, the Bank of Canada released its decision to hold interest rates at 5%, citing “clearer signs that monetary policy is moderating spending and relieving price pressures.”
Despite warnings from bank chief Tiff Macklem that rates could rise in the future, market watchers speculate that Canadians have seen the last hike for the foreseeable future. The possible rate peak comes after 10 increases since 2022, which saw the target rate hit a two-decade high. The bank also decided to hold interest rates steady at its last meeting.
South of the border, meanwhile, the US consumer price index rose 0.4% in September — following the previous month’s 0.6% increase. The country also added over 330,000 jobs.
Still, the Fed determined that the rate of price increases trending down was enough to warrant a pause, and it held rates at the 5.25-5.5% range, boosting confidence in a soft landing in the US.
Last week, Federal Reserve Chair Jerome Powell admitted to uncertainties in the market but said evidence suggested monetary policy “is not too tight right now.” Still, he suggested rates could hold — although, like Macklem in Canada, he cautioned that future hikes are possible.
Geopolitical pressure, including the war in Ukraine and the Israel-Hamas war, is leaving plenty of questions around future economic outcomes. Meanwhile, an expected rise in COVID cases, a possible US government shutdown, extreme weather events — with experts predicting a powerful El Nino event later this year — are factors to watch. We’ll be watching to see what effect they have as hopes for a soft landing and break from the madness of the last several years persist.
"For Rent, For Sale" sign is seen outside of a home in Washington, U.S
Home sales slow down as mortgage rates bite
High mortgage rates are causing real-estate slowdowns in both the United States and Canada, raising worries about the broader economic impact – as well as hopes that central banks will stop hiking rates.
The number of existing home sales in the United States in August was the lowest since January, and the September numbers are expected to be lower still. The Wall Street Journal reports that sales are likely at a level not seen since the end of the 2008-2011 financial crisis.
In Canada, existing home sales fell in September for the third straight month. “Expect a quieter than normal winter with all eyes on the Bank of Canada,” said Canadian Real Estate Association senior economist Shaun Cathcart.
This is likely to put downward pressure on prices, as some homeowners, unable to keep up with higher mortgage payments, are forced to sell their homes.
The slowdown in the recently superheated real estate market, and the decline in inflation in both countries, has analysts expecting central banks to stop raising rates.
Economists can’t predict how it will all wash out, but both Justin Trudeau and Joe Biden, as incumbents, will bear the brunt of continued inflation, or an economic downturn from central banks tightening money supply to fight inflation. On Thursday, Federal Reserve Chair Jerome Powell said that the central bank is unlikely to raise interest rates again unless he sees signs of the economy overheating, which may give both Biden and Trudeau hope that the fundamentals will change before they face reelection.
Silicon Valley Bank.
Super banker, we need you
Where have you gone, Joe Shuster? Our nation turns its banking eyes to you.
Joe Shuster? The Canadian-American who co-created the comic book hero Superman?
Yes, I’m thinking of Joe a lot these days – not just because he once lived on the same street in Toronto as I did (Borden Street, for those interested) but because, with Lex Putin’s apocalyptic tendencies, everyone is looking for a superhero. And we’re facing another tricky threat: the economy. Inflation is high, and banks are failing. So it may be time for a new hero: Super Banker.
It could be big. After all, rescuing banks is as American as the summer blockbuster sequel. The modern bank bailout franchise started with the 2008 financial collapse, where the Feds collected over $700 billion from the have-nots to save the gold-plated sterns of the have-yachts. (Ok, it’s not that simple, but it actually cost a lot more than that, and the banks got bigger and richer, not smaller and poorer.) This latest installment opened with the collapse of the Silicon Valley Bank, Signature Bank, and First Republic Bank (Full disclosure: FRB has been a longtime supporter of GZERO World), and continues with the regional bank PacWest on the brink and other smaller players like Western Alliance and Comerica getting pummeled.
Who will come to the rescue? It's a bird, it's a plane … No, it’s the Federal Deposit Insurance Corporation, come to save our savings! Is that Jay Powell, the Fed chair? Or … Super Banker? (Maybe JPMorgan Chase’s Jamie Dimon could play that part … that’s up to casting.)
Canadians are flocking to their own banks with hot-buttered paychecks to watch this American financial horror show unfold. Could it happen in Canada too? Will this trigger a full-on financial crisis? So far, no. The market has basically hiccupped and moved on, for now. Why? Because this is significantly more common in the US than in Canada.
According to the FDIC, there are over 4,100 insured commercial banks and more than 2,700 supervised commercial banks in the US. Canada, on the other hand, has only 35 domestic banks (called Schedule 1) and fewer than 40 foreign-owned or subsidiary banks. With its closed system and small pool, Canadian banks are more heavily regulated, less open to experimentation, and trade off stability for innovation.
US banks are more decentralized and localized, significantly more experimental, especially after the Glass-Steagall Act (which once put a wall between commercial and investment banking) was repealed in 1999. On the plus side, that led to massive financial innovation. On the minus side, it eventually caused the 2008 crisis. Then came Dodd-Frank, another financial safeguard passed in 2010 to help stabilize and regulate the US financial system, but Trump rolled back many of those regulations in 2018 and so … here we go again.
Basically what you get is a profitable, innovative, dynamic US banking system that periodically either burns customers who lose their deposits or forces the FDIC to bail out banks — or you get the sleepier Canada side, which rarely puts savings in jeopardy but lags behind in new financial products and so misses out of a lot of upside. Some perspective on that risk? Since 1967, the Canadian Deposit Insurance Corporation has dealt with about 43 bank failures or bailouts, as the CBC recently pointed out. The US has dealt with more than 500 bank collapses since the year 2000! So the risk-reward algorithm is way different — and says a lot.
With fears of a commercial real estate meltdown being the next great crisis and as the inflation and AI genies have left the lantern, it may require a uniquely Canadian-US mind like Joe Shuster to come up with a hero to save banks from their own growth, tamp down inflation, and allow the good citizens of these two countries to get back to their happy, comic book lives.
Super banker, where are you?
___________
GZERO North is a weekly newsletter that gives you an insider’s guide to the very latest political, economic, and cultural news shaping US-Canadian relations. Subscribe today.
Ian Explains: Biden-Trudeau summit well worth the wait
Joe Biden and Justin Trudeau finally met recently, two years after Biden came to office. The good personal vibes, as expected, were great, and the state of the US-Canada relationship is strong, though not perfect, Ian Bremmer explains on GZERO World.
The US president and the Canadian PM signed an agreement on asylum seekers, but other, thornier issues still need to be worked out.
One of them is Haiti. Biden wants Canada to lead stabilization efforts there, but Trudeau is reluctant to put Canadian boots on the ground.
Beyond that: trade, security, climate change, Russia in Ukraine, and, of course, China.
Watch the GZERO World episode: What the US and Canada really want from each other
- What the US and Canada really want from each other ›
- Is the US exporting its toxic politics to Canada? ›
- Canada has lower risk appetite than the US, says think tank chief ›
- Will US-Canada border deal mean riskier future for migrants? ›
- India-Canada standoff heats up while US seeks a compromise - GZERO Media ›
What Americans and Canadians agree — and disagree — on
Americans like to think: "Canadians are just like us." But many Canadians don't feel the same way about Americans.
Still, Americans and Canadians do mostly agree on a lot of things, as we know from recently polling by Maru Public Opinion for GZERO North.
What do Americans and Canadians find the most and least common ground on? Maru executive VP John Wright digs into the data from the survey in a conversation with GZERO's Tony Maciulis at a US-Canada Summit in Toronto.
For more, sign up for GZERO North, the new weekly newsletter that gives you an insider’s guide to the world’s most important and under-covered trading relationship, US and Canada.
Trudeau lays out plan to grow Canada’s clean economy
On the heels of his recent meeting with US President Joe Biden in Ottawa, Canadian PM Justin Trudeau took to the stage at the US-Canada Summit in Toronto on Tuesday to woo Bay Street — Canada’s version of Wall Street — and voters with a clear message: The future is bright for Canadian (green) businesses and workers.
Referring to Biden’s Inflation Reduction Act, which been a source of friction over fears it’ll see investment flee south of the border, as a historic investment to fight climate change, Trudeau spotlighted his own plan to invest in the clean-energy economy.
The PM hopes that the Canada Growth Fund, a new $15 billion investment vehicle announced in last week’s budget, will help scale the clean-tech companies that might otherwise have moved to the US owing to IRA-linked subsidies. This, combined with billions in foreign direct investment, he said, will help “Canadian workers and Canadian industry stay competitive.”
Trudeau’s plan will also ensure that Canada offers a reliable supply chain feeding the US trading partnership. “Global economies are seeking stable trading partners and reliable supply chains in the face of geopolitical uncertainty,” he said.
The PM acknowledged that globalization has failed to deliver increased wealth for all, resulting in disillusioned masses who remain skeptical of the establishment. Political forces today, he warned, are trying to leverage this economic pain, promoting isolationism and dangerously sewing distrust.
“Profits only come when people are doing well,” he said.
Whether he can deliver on pledges to improve Canadian competitiveness will be up to voters to decide. Trudeau must face the electorate before Oct. 2025.
Trudeau spoke at a US-Canada summit in Toronto co-organized by Eurasia Group and BMO, a top Canadian bank. The event brought together government and business delegates from the two countries to talk issues like US-Canada politics, trade, tech innovation, security, energy, and climate change. Among the guests were US Sen. Chris Coons, Michigan Gov. Gretchen Whitmer, Ontario Premier Doug Ford, and Ambassadors Kirsten Hillman and David Cohen.
- Testing Trudeau's star power ›
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- Inflation Reduction Act will lower energy costs & bring back jobs, says US energy secretary ›
- Podcast: How healthy is the US-Canada relationship? - GZERO Media ›
- India-Canada standoff heats up while US seeks a compromise - GZERO Media ›
- Can the world run on green energy yet? Author Bjorn Lomborg argues that's very far off - GZERO Media ›