Welcome Back to The Weekly Echo!

We’re already over halfway through March, so hopefully some more cheerful weather is just around the corner. The difficulty with economics is unpredictability; some weeks are packed with major developments, and others bring a slower news cycle - this week falls into the latter. While there haven’t been as many headline-grabbing economic shifts, we’re still covering the most important updates you need to know. From the latest on Canada to developments in the oil markets, we’re keeping it short and sharp this time around. Let’s dive in.

Canada: Interest Rate Cuts and a New PM

​Canada is undergoing significant changes, marked by a pivotal shift in its political leadership and monetary policy.​

Mark Carney Sworn In as Prime Minister

On March 14, 2025, Mark Carney was sworn in as Canada's 24th Prime Minister, succeeding Justin Trudeau. Carney, a former central banker with extensive experience, including roles as Governor of the Bank of Canada and the Bank of England, brings a wealth of economic expertise to his new position. His appointment comes at a critical time, as Canada navigates complex trade tensions and seeks to reinforce its sovereignty on the global stage.

Bank of Canada Cuts Interest Rates Amid Trade Tensions

In response to escalating trade tensions with the United States, the Bank of Canada cut its benchmark interest rate by 25 basis points to 2.75% on March 12, 2025. This move is aimed at countering potential economic slowdowns caused by higher tariffs and growing trade uncertainties.

The benchmark interest rate, also known as the policy rate, is the rate at which the central bank lends to commercial banks. Lowering this rate reduces borrowing costs for banks, making it cheaper for businesses and consumers to access credit. As a result, investment and spending typically increase, boosting economic output and promoting growth.

However, the Bank of Canada acknowledged that while this expansionary policy may stimulate the economy, it also risks fueling inflation. With inflationary pressures already building due to mounting US tariffs, the central bank stressed the importance of cautious monetary adjustments to strike a balance between stimulating growth and keeping inflation under control.

By reducing the rate, policymakers aim to shield the Canadian economy from the fallout of ongoing trade conflicts, particularly with the U.S. However, they remain vigilant about the potential for slower growth and higher prices as global economic conditions remain uncertain.

Navigating Economic Challenges

The concurrent developments of a new prime minister and a strategic interest rate cut underscore Canada's proactive approach to addressing both political and economic challenges. Carney's leadership is anticipated to focus on diversifying trade partnerships and strengthening domestic economic resilience. Meanwhile, the Bank of Canada's monetary easing reflects a commitment to sustaining economic stability amid external pressures. These measures collectively highlight Canada's efforts to navigate a complex global economic environment while safeguarding national interests.

Oil Prices on the Rise: What’s Going On?

Oil prices have been on the move lately, with significant fluctuations driven by a mix of geopolitical events, economic policies, and market speculation. Understanding why prices are going up can seem confusing, but it really comes down to two main things: supply and demand.

Why Are Oil Prices Rising?

As of March 17, 2025, Brent crude oil prices hit around $71.20 per barrel, while West Texas Intermediate (WTI) crude rose to about $67.80 per barrel. These price hikes follow a series of global developments, mainly related to geopolitics and economic shifts.

Supply Issues Pushing Prices Up

1. Geopolitical Tensions in the Middle East:
The United States recently launched airstrikes against Yemen's Houthi rebels, escalating tensions in a region critical to global oil supply. The Red Sea, a vital route for oil shipments, could face disruptions if the conflict intensifies. When markets fear a potential drop in supply, prices tend to spike as buyers scramble to secure their oil needs.

This rush to lock in oil purchases often takes the form of increased demand for futures and forward contracts - agreements to buy oil at a set price on a future date. As more buyers enter the market to hedge against potential shortages, demand for these contracts pushes prices even higher. The result is an immediate uptick in oil prices as markets anticipate potential bottlenecks in supply.

2. Sanctions on Major Producers:
The U.S. government has tightened sanctions on Iran and Russia, aiming to cut their crude oil exports. This move is part of ongoing geopolitical strategies but has a direct effect on oil supply, as both countries are major exporters. With less oil in the global market, the reduced supply naturally drives up prices.

Demand Is Still Strong Despite Uncertainty

1. China’s Economic Stimulus:
China, the world’s biggest oil importer, recently announced plans to boost domestic consumption as part of an economic stimulus package. This has led to expectations of higher demand for industrial production and transportation fuel. In simple terms, when China’s economy is active, it needs a lot of oil, pushing prices higher.

2. Global Economic Concerns:
Despite some worries about inflation and slower growth, overall demand for oil remains robust. While some economic signals point to slowdowns in Europe and North America, other indicators suggest steady consumption, especially from emerging markets. This mixed picture keeps prices from falling, even when some economies are struggling.

Market Sentiment Plays a Big Role

Beyond just supply and demand, market expectations significantly influence oil prices. Traders often act not just on what’s happening now but on what they think will happen next.

• Geopolitical Concerns: Traders worry that conflicts like those in Yemen might drag on, causing long-term disruptions to oil supplies.

• Speculation on Interest Rates: If central banks, like the U.S. Federal Reserve, raise interest rates, it could make the dollar stronger. Since oil is priced in dollars, a stronger dollar makes oil more expensive for buyers using other currencies, potentially lowering demand.

Why Do Higher Oil Prices Matter?

When oil prices rise, it hits everyone. Consumers face higher fuel and heating costs, while businesses see increased production expenses. Inflation also becomes a bigger threat, as higher transport and energy costs ripple through the economy.

Additionally, higher oil prices can slow global growth, as companies cut back on investment and households reduce spending. This is particularly concerning at a time when many economies are already dealing with inflation and slow growth.

The Impact of Tariffs: Adding Fuel to the Fire

Tariffs on Chinese goods by the United States are also straining global economic growth. As Chinese exports become more expensive, demand falls, which weakens one of the world’s largest economies. A slowdown in China means less demand for oil, but not enough to outweigh supply disruptions and other demand factors.

Bottom Line

Oil prices are influenced by a mix of real-world supply issues, economic activity, and trader speculation. Geopolitical conflicts, sanctions on key producers, and strong demand from China are the primary factors driving prices up. While market sentiment and policy speculation add to the uncertainty, one thing is clear: higher oil prices will continue to shape the global economic landscape in the coming months.

U.S. Stocks Slide as Tariffs and Global Uncertainty Weigh on Markets

Over the past month, U.S. stock markets have been caught in a downward spiral, with major indices recording four consecutive weeks of losses. The sell-off has been largely driven by escalating trade tensions and newly implemented tariffs, sparking fears about slower economic growth and rising inflation. With uncertainty looming, investors are reassessing their outlook on both domestic and global markets.

Tariffs: How They Disrupt the Economy

Tariffs are essentially taxes on imports, designed to make foreign goods more expensive. When the U.S. imposes tariffs on products from China, Canada, and Mexico, American businesses that rely on these imports face higher costs, which can then get passed down to consumers.

This creates a two-fold problem:

1. Rising Prices (Inflation) – More expensive imports mean higher prices for everyday goods, putting pressure on household budgets.

2. Retaliatory Tariffs – Other countries may respond by imposing their own tariffs on American exports, hurting U.S. industries that rely on international sales.

Rather than helping U.S. businesses, broad tariffs can disrupt supply chains, reduce corporate profits, and slow investment, ultimately weighing on economic growth.

Global Growth at Risk

The Organisation for Economic Co-operation and Development (OECD) has already revised its global growth forecasts downward, warning that continued trade disruptions could further slow economic expansion:

• Global GDP Growth: Expected to drop to 3.1% in 2025 and 3% in 2026.

• U.S. Economy: Projected to slow from 2.6% in 2024 to 2.2% in 2025, and further to 1.6% in 2026.

This reflects how trade uncertainty is dampening business confidence and leading to a more cautious investment environment, both in the U.S. and worldwide.

Inflationary Pressures and the Fed's Dilemma

Tariffs contribute directly to inflation, as businesses pass higher costs onto consumers. With inflation already a major concern, additional price pressures could force the Federal Reserve to rethink its interest rate strategy.

If inflation remains persistent, the Fed may hold off on cutting interest rates, making borrowing more expensive for businesses and consumers. This could further slow economic activity at a time when growth is already weakening.

How Markets Are Reacting

Investors are becoming increasingly cautious, leading to sharp declines in stock prices. Major indices have been in the red for weeks, reflecting growing concerns that the economy could slow faster than expected.

The market’s biggest worries include:

• Corporate Profit Margins – Higher costs from tariffs could eat into earnings.

• Investor Confidence – Uncertainty is leading to more conservative investment strategies.

• Interest Rate Uncertainty – If inflation remains high, rate cuts could be delayed, making borrowing more expensive.

The combination of weaker growth expectations, tighter financial conditions, and trade uncertainty has created a challenging environment for stocks.

What’s Next?

With trade tensions showing no signs of easing, markets remain on edge. The big questions yet to be answered are:

• Will the U.S. and its trading partners strike new deals to ease tensions?
  
  

• How will businesses adjust to higher costs?
  
  

• Will the Federal Reserve pivot on interest rates if inflation worsens?

The coming weeks will be crucial in determining how tariffs, inflation, and economic growth interact - and whether the markets can regain their footing. For now, caution remains the dominant sentiment on Wall Street.

Looking Ahead

The coming months will be crucial in determining the outlook for the rest of the year. Current forecasts are being trimmed back but who knows what might be around the corner.

As always, we’d love to hear your thoughts! Have you got feedback or a story you’d like us to cover? Hit reply and let us know.

If you found this edition valuable, share it with a friend or colleague who might enjoy it! 

Thanks for reading, and as always we will see you next week!

Best wishes,
Harry & Reika
Co-Founders, Echonomics

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