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01 Dec 2023

Canadian jobs growth tops expectations, but details point to slowdown ahead

The Canadian job creation engine topped forecasts in November, firming expectations for another hold at the Bank of Canada’s meeting next week. 25,000 new positions were added in the month, with population growth and still-high participation rates pushing the unemployment rate to 5.8 percent, up from 5.7 percent in October. Consensus estimates had pointed to a 15,000 new hires, with unemployment rising to 5.8 percent. The finance, insurance, and real estate sectors – the most interest-rate sensitive areas of the Canadian economy – suffered the bulk of the losses, shedding 18,000 jobs in the month, and contributing the most to...

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The peso’s bull run has run out of steam.

After a world-beating drive higher, the Mexican peso lost momentum late in the third quarter and has largely failed to regain it, staging a relatively modest rebound against a retreating dollar. Several factors are in play: A drastic increase in government spending plans – coming ahead of the presidential election in June 2024 – spooked investors. The foreign exchange commission’s decision to unwind its non-deliverable hedging programme put pressure on spot rates. And the Banxico began making dovish noises, suggesting that it might begin cutting rates by March. Change in spot exchange rates, DXY and MXNUSD We think markets overreacted...

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The fiscal outlook still looks favourable.

Under President Andres Manuel Lopez Obrador’s recently unveiled budget plan, Mexico will run its largest deficit since 1988 next year – amounting to roughly -4.9 percent of gross domestic product, up from this year’s -3.3 percent. With global interest rates holding near post-2000 highs, higher borrowing costs could threaten credit ratings and limit the next government’s room for maneuver.  But Mexico’s fiscal position remains more positive than many of its peers. After years of relative austerity under Obrador’s pseudo-populist leadership, the government debt-to-gross domestic product ratio compares favourably with most of the country’s less-developed counterparts and is well below those...

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Canada’s economy is slowing.

With higher borrowing costs and slowing credit growth inflicting serious pain on Canada’s spectacularly indebted private sector, the economy appears poised for a hard landing. The direction of travel for residential investment is clearly down: after an early-2023 dead-cat bounce, prices and activity levels are subsiding across the country, and developers are moving to the sidelines. Energy prices are well off peak levels, and business confidence has fallen to post-pandemic lows. Per capita household consumption is falling as higher debt carrying costs eat into overall spending levels. Perhaps most critically, the labour market is weakening, with vacancies down about a...

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Nearshoring hopes look overdone.

With geopolitical tensions between the US and China forcing businesses to diversify supply chains, the country’s stability, low labour costs, and geographic proximity have raised hopes that a “Made in Mexico” moment is at hand. Indeed, the country has displaced China as the United States’ largest trading partner. Share of US imports, 12-month moving average, % But under López Obrador, energy policy has become less flexible and even less climate-friendly, limiting the extent to which companies with net-zero commitments can relocate production facilities. Critical regulatory bodies remain captive to political whims. And the country devotes an incredibly low share of...

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