MONTREAL ― The spread of the coronavirus around the world and a wave of railroad blockades across Canada were supposed to have dragged down the country’s economy in February, but early evidence suggests manufacturers are shrugging off the problems ― at least for now.
The IHS Markit Canada Manufacturing PMI ― a measure of factory activity ― jumped to 51.8 in February, from 50.6 in January. Any number above 50 indicates expansion.
“Canadian manufacturers [noted] that greater demand from U.S. clients had helped to offset weaker spending in the Asia-Pacific region,” IHS Markit said in its latest survey, released this week.
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However, it did note that wait times for goods from suppliers saw a large spike in February.
“Worsening vendor performance was attributed to a combination of rail transport blockades and delays with the receipt of items sourced from suppliers in China,” the research agency said.
The manufacturing report came the same week the Bank of Canada (BoC) announced a large interest rate cut in response to a slowing economy around the world.
Many experts note an interest rate cut can’t do much directly to help in a situation like this. Interest rate cuts stimulate demand, but with Chinese factories shut, the world has a supply problem.
All the same, lower rates are “meant to flood the system with liquidity and improve consumer and business confidence ― just as happened in response to the financial crisis,” Dominion Lending Centres chief economist Sherry Cooper wrote in a client note.
Some economists argued that the interest rate cut could only add fuel to Canada’s accelerating house prices, as it will increase the maximum purchase price borrowers can afford. And it would come at a time when Canadian households are already struggling with a spike in insolvencies.
But in times of economic emergency, “financial vulnerability issues ... take a back seat to confronting this shock head on,” Bank of Montreal economist Sal Guatieri wrote in a client note.
The next insight into the impact of the unfolding crisis on Canada’s economy will come on Friday, when Statistics Canada reports unemployment numbers for February.