With rate cuts signalling weaker economy, watch the Canadian dollar

financialpost.com:

While the Bank of Canada’s interest rate cut last week may be seen by some as good news, it points to worrisome underlying problems.

The central bank cut rates by 50 basis points, sending its overnight rate down to 3.75 per cent. Interestingly, bond markets factored this in with no movement in the five-year Government of Canada bond yield following the announcement.

While politicians are cheerleading rate cuts as a sign of inflation coming under control, the fact of the matter is it’s a weakening economy that’s responsible, as Genevieve Roch-Decter of Grit Capital recently posted on X (formerly Twitter). She noted that Canada was the first G7 nation to cut rates as its economy is falling behind, with a number of subsequent cuts since.

https://x.com/GRDecter/status/1849085230130332019

According to a report by University of Calgary economist Trevor Tombe, by June this year, real GDP per capita had declined for five straight quarters. Over the previous year, per capita GDP fell by 2.2 per cent, and compared with 2022, it is down 3.6 per cent.

“This has real implications for the economic wellbeing and standard of living of Canadians. Had Canada simply matched U.S. growth, for example, our economy would be 8.5 per cent larger today. That is roughly equivalent to $6,200 more annual income per Canadian. This growing gap is now the widest it has been in nearly a century, which should prompt serious concern,” he writes in a study for the Fraser Institute, Boosting Canada’s Competitiveness by Reforming Business Taxation.

This brings to mind a great mantra: “You can make excuses or progress, but you can’t make both.” Unfortunately, all we’re getting out of Ottawa is plenty of excuses with a Prime Minister unwilling to acknowledge