Central Bank Warns of Deep Recession

The Bank of Canada announced no interest rate cut and maintained the overnight interest rate target at 2.75%! The government announced a "tariff exemption" for six months! A large number of goods are affected, and Canadians panic about inflation shocks! Trump added tariffs to 245% again!

Currently, the bank interest rate is 3%, and the deposit interest rate is 2.70%.

Another major highlight of this interest rate decision is that the central bank unusually canceled its quarterly economic forecast model and released two scenario analyses:

Scenario One: US-Canada tariffs are partially canceled through negotiation, with short-term pressure on Canadian GDP but moderate growth within the year; inflation drops to 1.5% and gradually returns to the 2% target.

Scenario Two: Trade wars escalate comprehensively, triggering global conflicts, causing Canada to enter a technical recession lasting more than a year, with inflation surging above 3.5%, leading to a deep recession.

Bank Governor Tiff Macklem emphasized that these two scenarios cannot cover all possibilities, and the tariff imposed on April 2nd once brought the situation close to the latter, while the new exemption on the 9th pulled the situation back to the "middle area."

Macklem stated that the decision to maintain the interest rate unchanged was made to observe the consequences of US tariffs for some time longer.

"Before the situation becomes clear, we will not rely excessively on forward guidance as before. This also means that if future data clearly develops in one direction, we are prepared to respond decisively."

Due to a series of tariffs imposed by the United States on Canada, the market experienced severe fluctuations, and extreme market volatility further exacerbated economic uncertainty.

Now, the global growth outlook is weakening, oil prices have plummeted significantly, and the Canadian dollar exchange rate has appreciated due to the softening US dollar.

"The future remains unclear, and we do not know what tariffs Trump will impose next or how long they will last."

With the announcement of tariffs and rising uncertainty, consumer and business confidence in Canada has been hit, and the economy is slowing down. Signs of weakening consumption, residential investment, and corporate spending appeared in the first quarter.

Tensions in trade also affected the recovery of the labor market. Employment numbers nationwide fell in March, and businesses expressed plans to slow hiring. Wage growth also showed signs of slowing down.

In addition, maintaining the interest rate unchanged may keep the sluggish real estate market unchanged.

The Bank of Canada expects that GDP growth will slow significantly in the second quarter, with the April inflation rate expected to drop to around 1.5%.

Macklem stated that monetary policy cannot eliminate trade uncertainties or offset all impacts from trade wars; it can only maintain price stability.

Yesterday, the Canadian government officially announced —— companies continuing to produce cars in Canada will be exempt from retaliatory tariffs!

In the past two days, there were rumors that Honda planned to move its factory to the United States. Although it was later confirmed to be false news, Ontario and Honda both stated they would remain in Canada, but moving factories to avoid tariffs became a choice for many companies.

Because of this, Federal Finance Minister Francois-Philippe Champagne announced that the Canadian government will allow automakers to import a certain amount of vehicles assembled in the United States duty-free, provided these vehicles comply with the relevant provisions of the USMCA. However, this tariff-free quota will decrease proportionally with reduced production or investment in Canada by the enterprise.

Prime Minister Justin Trudeau said: "Trump's tariffs are essentially trying to dismantle the highly integrated North American automotive manufacturing system."

In addition to the car tariff exemption, Canada simultaneously announced a six-month tariff buffer period for other affected enterprises, applicable to —— goods imported from the United States used for manufacturing, processing, food and beverage packaging in Canada; critical materials related to public health, medical safety, and national security.

According to the latest poll results, 87% of Canadian respondents worry that tariffs will affect personal finances, and 78% of Canadians feel uneasy about stock market volatility. Increasing numbers of Canadians and Americans say that living costs have risen significantly in the past week.

On April 3rd, Trump imposed a 25% tariff on all imported cars, and Canada followed suit with reciprocal tariffs.

On May 3rd, tariffs on auto parts are scheduled to take effect.

In addition to the three tariffs currently taking effect, Canada still has at least three more tariffs pending.

Trump exempted 75 countries globally and reduced reciprocal tariffs to 10%, but he did not exempt Canada; those that should take effect are still in effect, with no exemptions.

Moreover, Trump played targeted moves today by announcing a tariff increase to 245% on Chinese goods!

However, China now responds by ignoring it because Trump is playing a "number game," and adding more tariffs has no meaning.

For the global market, Trump "set fires" worldwide, imposing tariffs at will and then exempting them just as quickly, creating chaos and continuously triggering intense market fluctuations and people's economic anxieties.

Original article: https://www.toutiao.com/article/7494021849114739200/

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