Highlights for the third quarter* of 2021

  • Central banks willing to ease monetary support
    • The U.S. Federal Reserve Board (Fed) announced it will likely reduce bond purchases soon. Nine out of 18 officials expect a rate increase in 2022.
  • Oil prices rose over the quarter
    • Rising demand for oil pushed prices higher. Supply challenges in the U.S. also drove prices higher. The Organization of the Petroleum Exporting Countries (OPEC) said it would increase its production through the end of the year.
  • Vaccination efforts continued as virus variants remained an issue
    • Over six billion vaccine doses have been administered globally. However, the COVID-19 Delta variant continued to spread.

Is the impact of COVID-19 persisting?

Economies around the world continued opening because of vaccinations. However, virus variants meant COVID-19 remained a health concern. The ongoing pandemic also challenged the global economic recovery.

How is the high global inflation affecting the economy? 

Inflation became an issue as the global economy strengthened. Most countries believe higher inflation is the result of economic reopening and that it won’t persist. As a result, they’re unlikely to raise interest rates soon. 

Central banks may reduce their bond buying that provides economic support. And the Fed said it would wait for more proof of higher Inflation and employment levels before changing its approach.

How are major economies doing? 

Most of the major economies grew in the latest period of measurement: 

  • China led the way in the second quarter of 2021. 
  • The U.S. was strong. 
  • European and Japanese economies grew.

Were financial markets positive or negative?

Financial markets were mixed this quarter:

  • Global equity markets mostly declined over the third quarter because of slowing economic growth. 
  • U.S. equities gained over the quarter. 
  • Emerging markets and China were among the regions that declined. 
  • Japan and the U.K. were among the countries that gained. 

What happened to the price of oil in 2021?

Due to a strong demand and lower supply, oil prices rose. 

What happened to the price of gold in 2021? 

Because the Fed will begin reducing its asset purchases soon, the price of gold declined.

How are Canadian markets doing? 

Canada showed mixed results:

  • Canadian equities declined over the quarter. 
  • The health care sector underperformed. 
  • The consumer discretionary and materials sectors fell. 
  • The Canadian economy had grown in the first quarter of 2021. Economists expected more growth in the second quarter, but Canada’s economy shrank instead. 
    • The latest measurement period was the first decline in Canada’s economic growth since the second quarter of 2020. A reduction in real estate activity led the decline.
    • Economic activity picked up in the third quarter as lockdowns eased. The Canadian economy added jobs and pushed the unemployment rate lower.
  • Inflation remained high as prices rose for gasoline and housing. The Bank of Canada (BoC) reduced its bond purchases in response. The central bank also held its key interest rate steady at 0.25%.
  • The rate of Canada’s household savings increased in the second quarter versus the first quarter. 
  • Home prices in Canada rose strongly on a year-over-year basis.
 

Read more: What do you do when the stock market goes down? 

Will the election results influence the Canadian economy?   

The federal election took place in September and the Liberal Party kept its minority government. The Liberals presented a spending plan to support households and the economy during the pandemic. They also announced plans to raise corporate tax rates on banks and insurers.

What can investors expect in the future?

Here are some highlights of the major factors affecting the world and Canada’s economy:

Factor

Outlook

Vaccinations

Ongoing vaccinations may help ease lockdowns around the world. The reopening of businesses should also provide a lift to economic activity.

 

Government and bank support

Continued support by governments and central banks should also help the economic recovery.

 

COVID-19 Delta variant

The spread of the COVID-19 Delta variant may slow global growth. Rising inflation and continuing supply issues may also challenge economic growth.

 

Bond prices

The Fed may reduce its bond purchases in the coming months given progress in the U.S. economic recovery. The U.S. federal funds rate is likely to remain near zero for the remainder of 2021.

 

Oil prices

Major oil producers said they would maintain production until the end of the year. Demand should remain strong if economic conditions keep improving. This increase in demand should support oil prices in the final quarter of 2021.

 

Canadian economy

Canada’s economy is likely to grow over the rest of 2021 as economic activity increases. This expansion would reverse the latest results that showed a decline in economic growth.

 

Consumer spending

Consumer spending may continue to be a key driver for the economic recovery as Canadians have a record level of savings.

 

Real estate and housing prices

The slowdown in real estate activity in the second quarter of 2021 may remain through the rest of the year. Home prices may continue to rise as there is more demand for housing than supply.

 

Canadian interest rates

The Bank of Canada (BoC) may hold its key interest rate at 0.25% for the rest of 2021.

 

The BoC may also continue reducing its bond purchase program. Any reduction in bond purchases will depend on the progress of the Canadian economic recovery.

 

*A quarter refers to a three-month period.

  • The first quarter (Q1) covers the months of January to March.
  • The second quarter (Q2) covers April to June. 
  • The third quarter (Q3) covers July to September. 
  • The fourth quarter (Q4) covers October to December.

 

This commentary contains information in summary form for your convenience. Although this commentary has been prepared from sources believed to be reliable, Sun Life can’t guarantee its accuracy or completeness. Plus, this commentary is intended to provide general information and should not be seen as providing specific individual financial, investment, tax, or legal advice. The views expressed are those of the author and not necessarily the opinions of Sun Life. Please note, any future or forward looking statements contained in this commentary are speculative in nature and cannot be relied upon. There is no guarantee that these events will occur or in the manner speculated.