Economic Outlook

War disrupts forestry markets

A sudden increased global demand and higher prices for Canadian logs, lumber, pulp and wood pellets could result from a dramatic disruption in wood markets, due to Russia’s invasion of Ukraine.

The Western world has moved with swift and dramatic sanctions against Russia for its invasion of Ukraine.

Russia is a commodities giant. In addition to being a major oil, natural gas and potash producer, it is also a major exporter of logs, lumber, pulp and pellets.

But economic sanctions being taken by both governments and the private sector (i.e. buyers) could suddenly throttle Russian forestry product exports, forcing buyers to seek new suppliers.

“Increased sanctions against trading with Russia and difficulty with financial transactions will probably interrupt and re-direct shipments of forest products throughout the world,” WRI Market Insights notes in brief…read more.

Russia’s attack on Ukraine disrupts supply chains; may spike shipping costs

The outbreak of war between Russia and the Ukraine this week will not have major implications on the global supply chain outside of one potential item – shipping costs.

That is the assessment of one leading analyst, who noted that while he does not expect any large effects on global supply chains and trade due to the type of commodities produced by the Ukrainian market, Russia’s role as a major energy producer means that the ongoing spike in oil prices may knock-on to the price of running cargo vessels and other transportation modes.

“Putin’s unprovoked and shameful war of aggression against the people of Ukraine is a humanitarian and political tragedy,” said Werner Antweiler, director of UBC Sauder School of Business’s Prediction Markets program and an associate professor. “What makes it worse is that Russia, as a large exporter of fossil fuel, is making money off it with every increase in the price of crude oil and natural gas.”

According to Freightos, which compiles data on a number of leading economic indicators such as freight prices, there has not been a large spike in recent days with the Baltic Index for containers – a figure economists refer to to assess current shipping costs for container freight. Similarly, Antweiler said the Baltic Dry Index for bulk goods – while up to 2,187 this morning (which is considerably higher than the 1,296 figure on Jan. 25) – is still well off the whopping 5,650 on Oct. 6 of last year…read more.

Canada Fined A Chinese State-Owned Bank For Anti-Money Laundering Non-Compliance

Canada just fined the world’s largest bank for not following anti-money laundering rules. A local subsidiary of the Industrial and Commercial Bank of China (ICBC) paid over $700k in penalties last year. Despite only being fined weeks ago, FINTRAC, Canada’s financial intelligence unit, found the problems during a routine audit in 2019. The regulatory body says the bank failed to file suspicious transaction reports, even when they had reasonable grounds to suspect money laundering or terrorist financing.

Chinese State-Owned Bank Found In Violation Of Anti-Money Laundering Reporting Standards

The Canadian subsidiary of the world’s largest bank was lax with its reporting standards, says a government agency. Following a routine compliance audit in 2019, Canadian authorities found several “administrative violations.” Those include:

  • Failure to treat activities in respect of some entities as high risk and to take the prescribed special measures;
  • Failure to submit suspicious transaction reports where there were reasonable grounds to suspect that transactions were related to a money laundering or a terrorist financing offense; and
    Failure to institute and document the prescribed review of some areas of its compliance policies and procedures.
  • More bluntly, FINTRAC accused them of not following anti-money laundering rules.

Canada Hits The World’s Largest Bank With A $700k Fine

Two years later, they’re circling back and asking the bank to pay a fine. Despite the audit being conducted in 2019, the fine was issued on October 4, 2021. ICBC has since paid the $701,250 fine. A lot of questions about how the fine’s value was determined. However, that data isn’t publicly available at this point.

The Canadian regulator is using the opportunity to remind financial institutions they’ll continue to ensure they follow compliance. “…we will be firm in ensuring that businesses continue to do their part and we will take appropriate actions when they are needed,” said Sarah Paquet, Director and Chief Executive Officer, FINTRAC…read more.

Canadian economy back to pre-pandemic levels in November: StatsCan

Canada’s real gross domestic product (GDP) increased 0.6% in November 2021, Statistics Canada announced February 1, lifting GDP 0.2% higher than it was in February 2020 – before the pandemic took its toll on the economy.

This was the sixth consecutive monthly increase.

Gains were seen across almost all sectors, with both services-producing (up 0.6%) and goods-producing industries (up 0.5%) seeing growth.

The report comes before the surge in Omicron cases in December, but StatsCan says it appears that so far, real GDP for December will likely be unchanged.

Douglas Porter, chief economist at BMO Economics, said the 0.6% increase was higher than anticipated growth of 0.3%.

“The sturdy growth in the days just prior to the spread of Omicron show, yet again, how the Canadian economy can rebound forcefully when it is allowed to re-open,” Porter said in a note to investors February 1. “These results overall are a bit better than expected, with the flash estimate of 6.3% growth for all of Q4 likely best capturing the underlying resiliency late last year…read more.

More than half of Canadians rate economy as “bad” or “very bad”

We often hear people say that polls are “a snapshot in time.”

While the comment is offered by political organizers who are dissatisfied with the popularity of their policy or candidate, the dictum is accurate – the moment in which people are asked a question can play a pivotal role in the way they feel about an issue.

I was asked to conduct a poll on September 19 and September 20, 2008, to look at the way Canadians felt about economic matters. The moment was significant for various reasons. In the previous week, the scope of the global financial crisis had become clear to anyone who was paying attention: the Dow Jones industrial average had fallen by more than 500 points, Lehman Brothers went bankrupt and the chair of the U.S. Federal Reserve, Ben Bernanke, stated that the United States “may not have an economy on Monday” unless drastic action was taken to deal with “toxic mortgages.”

At the time, Canadians would be forgiven for reacting with unbridled panic at the situation that was unfolding in the United States. Still, the data I collected over those two days in September 2008 exuded calmness: 61% of Canadians rated the economic conditions in the country as “very good” or “good,” 60% felt the same way about their personal finances and 60% expected the national economy to improve.

Thirteen years ago, the numbers outlined a Canadian public that was confident in withstanding any challenge. This past weekend, Research Co. and Glacier Media asked Canadians about the current state of affairs. The crisis this time is not caused by “toxic mortgages” but by COVID-19 infections and growing inflation.

In early 2022, the mood of the country is decidedly more sombre than it was at the height of the global financial crisis of 2008. Only 41% of Canadians rate the economic conditions in Canada as “very good” or “good,” while a more than half (54%) consider them “bad” or “very bad.”…read more.