May 19, 2020

Canada's GDP Rises Above Expectations

Joel Cuttiford
3 min
Canada's GDP Rises Above Expectations

Canada’s economic output improved in May, picking up speed to a 0.4 percent pace and setting the stage for a second quarter expansion that is hoped to help reverse the year’s weak start.

Economists had anticipated that May would bear signs that the economy was beginning to increase the speed of an otherwise slow year, especially since the U.S. reported that its output had grown by four percent annualized between April and June.

But the May uptick was faster than analysts had anticipated, suggesting 2.5 percent in the second quarter, a figure that is more in line with what was earlier considered an overly optimistic forecast by the Bank of Canada.

Analysts note that the result is positive given the first quarter’s slowdown to 1.2 percent annualized growth and April’s unexpectedly weak 0.1 percent monthly gain, which had economists downgrading their expectations for the second quarter.

In a note to clients, TD Bank economist Jonathan Bendiner said, “Looking further ahead, yesterday's stronger-than-expected preliminary U.S. real GDP reading, combined with an improving U.S. labour market, confirms our expectation of an acceleration in economic activity stateside.  This augurs well for Canada's export sector, which will increasingly be relied upon to fuel economic growth as domestic sources of growth are likely to wane.”

Evidence ties a strong U.S. bounce to the lift in Canadian economic activity.

In May, goods production rose 0.5 percent, specifically in the auto sector dependent on exporting to the U.S. market.  In a promising turn, the auto assembly industry advanced by 13.5 percent.

The export-dependent manufacturing sector also had a good month, with a gain of 0.8 percent from April.

While these results are certainly encouraging for the Canadian economy in the near future, analysts said that they are unlikely to influence the Bank of Canada’s position on interest rates, as they are in line with its expectations.

The bank’s decision regarding interest rates is more reliant on what occurs in the United States and whether the Federal Reserve moves up their plans to tighten interest rates.  Given the dropping unemployment rate and accelerating economy, many analysts believe that the Federal Reserve may move as early as mid-2015, which could force Canadian bank governor Stephen Poloz to act.

May’s result marked the fifth consecutive month that GDP has risen in Canada.

The mining, oil and gas sector also showed strength, advancing by 0.7 percent with crude oil production leading the way.  However, mining activity outside of the oil and gas sector fell 1.5 percent due to maintenance activities.

Construction picked up by 0.5 percent within the period following two consecutive declines.  Additionally, the service sector increased by 0.4 percent.

A separate report from Statistics Canada said that weekly earnings in Canada had risen by 2.6 percent in May over the past year, slightly ahead of the current inflation rate.  The agency also reported that non-farm payroll employment had increased by 158,500—or one percent—over last May, marking a higher level of job creation than tracked by the more often quoted labor market survey.

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Jun 8, 2021

Six issues at the top of tax and finance leaders’ agenda

Kate Birch
4 min
As businesses accelerate their transformation journeys, tax leaders are under increasing pressure to add strategic value. Deloitte reveals six tax trends

New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.

According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.

And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.

Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.

Trend 1: Businesses seek more strategic counsel from tax

Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.

According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”

Trend 2: Tipping point for resourcing models

Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.

Trend 3: Digital tax administration is moving faster than expected

in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.

"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."

Trend 4: Data simplification and lower-cost resourcing are top priorities

Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.

At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”

Trend 5: Skillsets are shifting

Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.

Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact 

Trend 6: 2020 brought productivity improvements

Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.

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