Good day. Economists are split over whether the Bank of Canada will lift interest rates today, according to a survey by The Wall Street Journal. That is because the central bank left its main interest rate unchanged in its most recent decision in April, but warned rates could remain elevated for a prolonged period to ensure inflation cools to its 2% target. Inflation in Canada has retreated after peaking at 8.1% about a year ago, but the most recent report indicated inflation edged upward in April to 4.4% from the previous month’s 4.3% level. In the U.S., the World Bank said it expects better global economic growth for this year than it previously estimated, thanks to resilient American consumer spending and China’s faster-than-expected reopening in the early part of the year. The bank still expects slowing growth in the second half of this year and a muted expansion into next year, according to its forecast released Tuesday.

Now on to today’s news and analysis.

Markets are leaning toward the Bank of Canada resuming interest-rate increases in response to stronger-than-anticipated consumer spending and job growth. The debate rests on whether the central bank starts on Wednesday, when it issues its latest policy decision, or in July.

Economists are split, based on a survey conducted last week by The Wall Street Journal. Eight of the 13 economists surveyed predicted the Bank of Canada will keep its main interest rate unchanged at 4.50%, whereas five said the central bank will lift rates by a quarter-percentage point, to 4.75%. Four of the eight economists who predicted no change in rates said they do expect a rate increase in the Bank of Canada’s July 12 policy decision.

Google searches for recession spiked last July and Treasury yields inverted in November—both economic red flags. Inflation is ticking at more than double what the Federal Reserve would like, and the central bank has tightened its monetary policy grip by raising interest rates. The Fed has warned that higher unemployment could be on the horizon.

So is a recession right around the corner?

“We should stop thinking we are driving off a cliff and the world will end,” economics professor Pete Crabb of Northwest Nazarene University in Nampa, Idaho, said Monday. Of a recession, he said more specifically, “I don’t see it.”

Others don’t either. Read more.

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8:30 a.m.: Canada trade report for April; U.S. trade report for April
10 a.m.: Bank of Canada interest rate decision

8:30 a.m.: U.S. weekly jobless claims
3:25 p.m.: Speech by Bank of Canada’s Beaudry to Greater Victoria Chamber of Commerce

Data mostly suggest that underlying price pressures haven’t been overcome in the eurozone yet, setting the European Central Bank up for another 25 basis point interest-rate rise this month, and likely in July, depending on the data, according to Société Générale. “We think core inflation will not show a sufficiently decelerating trend until late September, so we expect a last rate hike at the September meeting,” Anatoli Annenkov, an economist at Société Générale Cross Asset Research, writes in a note. While the focus is now on seeing core inflation trending lower, reaching the target in a timely manner is a different matter, something likely to keep rates unchanged for longer than markets expect, he writes.

—Emese Bartha

The unexpected 0.4% decline in new factory orders in Germany in April is a “real disappointment,” given their 10.9% slump in March, Commerzbank senior economist Ralph Solveen writes in a note. The figures confirm global demand for industrial goods has weakened noticeably, likely largely due to the global interest-rate hikes by central banks, he writes. A rapid recovery shouldn’t be expected and the trend in new orders is likely to continue to decline, though production will be stabilized for the time being by the processing of orders left unfilled during the pandemic, Solveen writes. But German manufacturers no longer see order backlogs as high, so this positive effect is also likely to disappear in the second half, with industry then likely to play a major role in causing the German economy to contract again, he adds.

—Edward Frankl

• The IBD/TIPP Economic Optimism Index inched higher in June but remained at a deeply pessimistic level. The index edged up one-tenth of a point to 41.7, after a 5.8-point dive in May. The index has remained in pessimistic territory, below the 50 neutral level, for 22 consecutive months. (Investor’s Business Daily)
• Canadian building permits fell sharply in April, hitting the lowest level since December 2020 as non-residential permits retreated following the strongest month on record. The total value of building permits declined 18.8% from the month before to a seasonally adjusted 9.55 billion Canadian dollars, the equivalent of $7.11 billion, Statistics Canada said. (Dow Jones Newswires)
• China's foreign exchange reserves dropped for the first time in three months amid a weakening yuan, official data showed. (DJN)
• China's exports dropped 7.5% from a year ago in May, drastically cooling from the robust growth seen the previous two months. (DJN)
• New orders at German factories fell unexpectedly in April, signaling continued declining demand in the country’s key manufacturing sector especially among foreign orders. Orders ticked down 0.4% on month, after a plunge of 10.9% in March, according to German statistics office Destatis. (DJN)
• Retail sales in the eurozone flatlined in April as high inflation and fears of an economic slowdown continued to weigh on household spending. The stable rate of retail sales volumes compares with an upwardly revised 0.4% fall in March, according to data from the European Union’s statistics agency Eurostat. (DJN)
• Retail sales growth in the U.K. in May slowed to its lowest level in six months, with three bank holidays in the same month failing to convince shoppers to buy more, the latest sales-monitor report from the British Retail Consortium showed. Sales for the four weeks to May 27 rose by 3.9% compared with the prior month, below the three-month average growth of 4.7%, the report said. (DJN)

This newsletter is compiled by James Christie in San Francisco.

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