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Jul 10, 2021 10:08 PM |
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Strong U.S. Recovery Aids Growth in Canada, Mexico
By Kim Mackrael and Anthony Harrup
July 10, 2021 5:30 am ET
The U.S. economy is so strong that its neighbors, too, are getting a boost.
Businesses and consumers are buying more products from Canada and Mexico, and Americans flush with savings are going back to traveling and sending more money across the southern border, helping to bolster two countries whose economies were hit hard by Covid-19 infections and lockdowns.
Central bank officials have raised their forecasts for economic growth this year to 6% for Mexico and 6.5% in Canada, in part because of the strong U.S. rebound. The $1.9 trillion U.S. stimulus plan enacted in March is expected to increase each country’s output by between half a percentage point and a full percentage point over a 12-month period, according to the Organization for Economic Cooperation and Development.
Much of the increase is due to the strong demand for everything from Canadian lobster to Mexican-made cars that is being generated as the U.S. economy reopens and consumers spend more of the cash they accumulated during the pandemic. U.S. imports from Mexico and Canada were up 30% and 29%, respectively, during the first five months of this year compared with the same period in 2020, and were around 3% and 5% above their 2019 levels, according to the U.S. Census Bureau.
The U.S. has “a lot of fiscal stimulus under way and more spending on infrastructure in the pipeline,” Bank of Canada deputy governor Timothy Lane said during a press conference last month. “All of that is generally going to be favorable for Canada.”
Citing progress in the economic recovery, Canada’s central bank in April scaled back its bond-buying program to 3 billion Canadian dollars, equivalent to $2.4 billion, in purchases each week from the previous level of C$4 billion. The Bank of Canada also pulled forward its assessment of when it might start raising interest rates again, to the second half of 2022, after earlier saying that could happen in 2023.
The Bank of Mexico raised its benchmark interest rate by a quarter percentage point to 4.25% on June 24 to counter a rise in inflation that resulted partly from price pressures associated with supply-chain bottlenecks . . . .
Some multinational companies have announced new investments in Mexico. Food and consumer-products company Unilever PLC plans to invest around $275 million in the next three years to expand capacity at its four production plants in Mexico . . . .
In eastern Canada, lobster processors are among those reaping the benefits of a reopened U.S. economy, with frozen lobster meat and tails fetching some of their highest prices on record . . . .
Roughly two-thirds of the lobster processed by association members is exported to the U.S. in a typical year, and . . . that proportion could increase this year given that buyers in the U.S. seem more willing to pay this season’s high prices than do customers in Europe and Asia.
Higher prices for crude oil, brought on by the U.S. and global recoveries, are also helping the Canadian economy.
In Alberta, where most of Canada’s crude-oil production is concentrated, there is growing optimism that higher prices will lead to more capital investment, said Jeffrey Sundquist, head of the chamber of commerce in the western province’s capital city of Edmonton.
Dwayne Sample, chief executive officer of Argus Machine Co. in Edmonton, which makes equipment used in oil and gas drilling, said his company has hired back about 35 of the 60 employees it laid off during the pandemic as sales began to pick up this year. However, he said many producers still aren’t buying drilling equipment because they are focused instead on paying off high debt levels or extracting oil from wells they already drilled . . . .
The Bank of Canada has warned that the strong Canadian dollar—buoyed in part by higher commodity prices—could eventually create a headwind for some manufacturing exporters. Supply-chain problems, such as a shortage of semiconductors needed in automotive manufacturing, are also holding back the Canadian and Mexican automotive industries.
Although the Canadian border remains closed to most nonresidents, travel to Mexico is picking up, providing another source of growth for the Mexican economy. In the January through April period, 2.3 million American tourists flew into Mexico, almost as many as in the first four months of 2020, with the resorts of Cancún and Los Cabos the most popular destinations. They accounted for 76% of the total foreign visitors who arrived by air.
Mexican remittances rose 22% in the first five months of the year and could grow further as the U.S. reopens activities that were closed or restricted in 2020, since many migrant workers are employed in services such as hotels and restaurants.
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https://www.wsj.com/articles/strong-...d=hp_lead_pos6
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