Dutch Disease not a major factor in Canada’s manufacturing woes, report argues

By Julian Beltrame, The Canadian Press - Wednesday, January 16, 2013 at 6:18 AM - 0 Comments

OTTAWA – The believe that the commodities boom of the past decade caused the decline in Canada’s manufacturing sector is being challenged in a new report that also takes a swipe at the notion of the loonie as a petro-dollar.

The report, issued by the Macdonald-Laurier Institute and written by economist Philip Cross, argues that manufacturers’ troubles stem more from structural economic changes than a higher Canadian dollar.

And it suggests that, in some ways, the commodities boom and its effect on the dollar actually helped the factory sector adapt.

For evidence, Cross notes that manufacturing output has grown the third fastest among 18 major industry groups since the 2008-09 recession, even outstripping growth in mining, oil and gas.

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Harper announces plan to strengthen venture capital investment

By The Canadian Press - Monday, January 14, 2013 at 1:45 PM - 0 Comments

MONTREAL – Prime Minister Stephen Harper has announced a plan to strengthen venture capital investment in Canada.

Under the plan, the government will aim to deploy $400 million to help increase private sector investments in the next seven to 10 years.

The Venture Capital Action Plan will make available $250 million to establish new funds led by the private sector.

As well, up to $100 million will be made available to recapitalize existing large private-sector funds.

There will also be a $50-million investment in three to five existing high performing Canadian venture capital funds.

Harper made the announcement in Montreal today.

The prime minister says the key to Canada’s global competitiveness depends on Canada’s venture capital industry having the resources to be sustainable.

PM Harper’s resolution for Canadians: Watch your debt levels!

By The Canadian Press - Saturday, December 22, 2012 at 7:30 AM - 0 Comments

OTTAWA – Prime Minister Stephen Harper has a suggestion for Canadians looking for a New Year’s resolution for 2013: go easy on consumer debt.

While most Canadians are living within their means, they need to be thinking about what could happen if interest rates suddenly rise, Harper told Global News national anchor Donna Friesen in an interview.

Statistics Canada reported earlier this month that debt levels were at their highest yet — for every dollar of after-tax income Canadians bring home, they’re borrowing more than $1.64.

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Canadian inflation falls to lowest level in three years at 0.8 per cent

By The Canadian Press - Friday, December 21, 2012 at 9:02 AM - 0 Comments

OTTAWA – Canada’s annual inflation rate fell to the lowest level in more than three years to 0.8 per cent in November, as weak economic conditions took the steam out of gasoline prices and car dealers offered deals to attract customers.

Economists had been expecting a smaller decline of two-tenths of a per cent. They knew lower gasoline prices in November would be a factor, but the 5.7 per cent drop-off at the pump was even steeper than estimated.

As well, the agency said automobiles cost 1.8 per cent less last month than they did in November 2011, mainly due to rebates dealers have put in place.

On a monthly basis, Statistics Canada’ basket of goods it measures cost 0.2 per cent less than it did in October.

Canada’s annual rate of inflation is the lowest since October 2009, a time when Canada was just emerging from the steep recession that had wiped out inflation as prices for many goods and services plunged.

The current situation, while an indication of weak global economic conditions, is unlikely to cause such alarm.

The Bank of Canada’s core inflation rate – which excludes the volatile energy component and is regarded a truer indicator of underlining price pressures – was 1.2 per cent in November.

That was down 0.1 per cent from October and still within the central bank’s acceptable range of between one and three per cent, although well below its ideal target of two per cent annual inflation.

On a year-to-year basis, gasoline prices in Canada were at about the same level in November, whereas in October they were four per cent higher.

In an accompanying note, Statistics Canada said it had adjusted how it measures the passenger vehicle index to better reflect manufacturers’ marketing strategies for new models, but the change would not have altered the result for November. The agency said it will make further modifications in March.

While prices continued to rise on most items, the pace of increase slowed in March for many. Food rose at a moderate 1.7 per cent despite a 4.3 per cent bump for meat, and shelter costs rose by a tepid one per cent.

There were also outright declines. Fresh vegetables were 5.8 per cent less expensive in November than a year ago, mortgage interest costs were three per cent lower, natural gas fell 6.8 per cent, video equipment 12.7 per cent, transportation 0.2 per cent, and clothing and footwear 0.6 per cent.

On a monthly basis, prices were lower on gasoline, clothing, electricity, hotel rates and mortgage interest costs.

Regionally, inflation was highest in Prince Edward Island and Quebec at 1.5 per cent, and lowest in British Columbia, at a barely visible 0.1 per cent.

With economy weak, low rates needed until at least late 2013, IMF tells Canada

By The Canadian Press - Wednesday, December 19, 2012 at 10:14 AM - 0 Comments

OTTAWA – The International Monetary Fund is telling the Bank of Canada to hold off on monetary tightening until the economy performs better.

The IMF says in a new report on Canada that the economy slowed in 2012 and will underperform again in 2013 with sub-two-per-cent growth.

The Washington-based international financial institution says the best case scenario suggests growth should perk up in late 2013, at which time higher interest rates might be warranted.

But it cautions that as modest as its appraisal is of Canadian economic prospects, all the risks are still tilted toward a worse — not better — result.

It says if the worst does happen, there is still some space for monetary easing to occur — that is for the Bank of Canada to lower interest rates even further.

Similarly, while the IMF says Canadian governments are taking the correct actions in seeking to rein in deficits, they should also be prepared to reverse course to new spending stimulus if an adverse shock were to occur.

Barring any unforeseen circumstances, the IMF says Canada’s economy should advance by just under two per cent in 2013 and at about 2.25 per cent in 2014.

Econowatch

By Colin Campbell - Wednesday, December 19, 2012 at 8:40 AM - 0 Comments

Stephanie Kuykendal/The New York Times

In approving the $15-billion takeover of Nexen Energy by China’s CNOOC, Stephen Harper cautioned that the sale was “the end of a trend.” Foreign ownership in the oil sands is okay, this time, but in the future, state-owned enterprises (SOEs) must be kept at bay, Ottawa ruled. The move was politically astute, but may prove economically dangerous. While attention has focused on whether we should fear SOEs like CNOOC and Malaysia’s Petronas (which also won approval to buy Progress Energy), the really scary question is: what will become of Canada’s oil sands without them?

As investors go, SOEs might not seem ideal. Critics argue they open the door to foreign governments dictating where our oil is sold and at what price. But Canada holds the trump card in the relationship through its ability to dictate royalty and tax rates, as well as labour and environmental laws that SOEs have to follow just like anyone else. Even if they decided to sell oil to China at less than market prices, the loss would be theirs, not ours.

The fact is that SOEs, not just in China but across Asia and the Middle East, rank among the few with the kind of money needed to fuel Alberta’s oil sands, where capital spending alone is expected to climb to more than $200 billion by 2025. They control 70 per cent of the word’s oil reserves, and 13 of the 20 biggest oil companies are state-run. This week, Natural Resources Minister Joe Oliver told the oil sands industry that investment will still flow into Alberta despite the recent ruling. Yet SOEs have been providing the bulk of the funding recently. Chinese SOEs have now sunk more than $25 billion into Canada’s energy sector since 2009. Ottawa is stressing that investment by SOEs is still welcome, just not ownership—not exactly an arms-open invitation.

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Flaherty takes pride in mission accomplished, cooling Canada’s housing market

By The Canadian Press - Monday, December 3, 2012 at 5:43 PM - 0 Comments

OTTAWA – Canada’s finance minister is taking credit for the recent cooling in the hot housing market, saying a slowdown now is better than a crash later.

Jim Flaherty was reacting to the sudden loss of momentum in the Canadian economy and the role housing, with the sector contracting 3.5 per cent annualized in the third quarter, is playing.

The government moved for the fourth time in as many years to tighten mortgage availability in July, resulting in a sharp reduction in housing activity, resales and even lower prices in some markets.

“The housing market has softened somewhat in part because of steps that I’ve taken and I’m happy about that,” he said.

“Less demand, lower prices, modestly, in the housing market are much better for Canadians than a boom followed by a bust. So I’m all for a soft landing.”

Flaherty and Bank of Canada governor Mark Carney have been warning Canadians for more that two years they were taking on too much debt, particularly in real estate. But with the economic growth at low ebb, Carney was unable to slow down the market with interest rate hikes without impacting the economy as a whole.

That left the policy brake in the hands of Ottawa, and in late spring Flaherty announced government insured mortgages would have their amortization periods cut to 25 years from 30. The impact was to raise the cost of monthly payments on a typical $350,000 mortgage with three per cent interest by $184. The move also reduces the amount a homeowner pays in interest over the life of a mortgage.

CIBC economists Benjamin Tal said Flaherty’s latest move, which went into effect in July, was the only one of the four that was done at a time the housing market was already showing signs of cooling.

That speeded up the decline, Tal said, adding he does not believe the correction is over. He expects house prices will drop about 10 per cent on average over the next year.

“(Still) I do agree it was necessary,” he said. “It’s good to slow housing when you want to slow it, as opposed to having it slow because interest rates rise or there’s another recession.

“(The correction) is not insignificant, but it’s not going to push us into a U.S.-style crash,” he added.

Flaherty said he is also pleased that Canadians appear to have heeded the message about getting their finances on a more sound basis.

Canadian households now hold about 162 per cent more debt than their disposable annual income, a record level. But the growth in credit has been slowing in recent months.

“When it comes to consumer debt, I am encouraged by the reaction of Canadians. More Canadians are paying down their mortgages, more Canadians are paying their credit cards on time. This is very desirable,” he said.

With housing acting as an unexpected drag, Statistics Canada reported Friday that growth braked to a meagre 0.6 per cent in the third quarter this year, the third consecutive quarterly decline of the year.

Flaherty said he was not overly concerned about the disappointing third-quarter result, saying he believes the momentum loss is temporary.

“It’s a time in which we are going to be buffeted, there’s going to some months better than others, but overall we will be OK with modest growth next year,” he predicted.

“We are on track … for modest growth, moderate growth, in the next fiscal year.”

Economists do expect a economic rebound in the current fourth quarter of 2012, blaming part of the third quarter’s losses to temporary shutdowns in the oil patch, but still say the economy will remain weak.

Canada’s economic growth slows to crawl, but Flaherty vows no new big spending

By The Canadian Press - Friday, November 30, 2012 at 3:44 PM - 0 Comments

OTTAWA – Canada’s economy has hit stall speed with few areas of strong support, setting back any talk of interest rates hikes in the new year and likely restarting calls for more government action.

The economy slumped to 0.6 per cent in the third quarter — below even the gloomy 0.8 consensus and about one third what the Bank of Canada had predicted as recently as the summer — as trouble loomed on the export side, housing and business investment.

In addition, Statistics Canada revised downward the second quarter one notch to 1.7 per cent and September, the final month of the third quarter, was flat, meaning the handoff to the current fourth quarter was weak.

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Watchdog suggests Ottawa may preparing for pre-election good news on deficit

By Julian Beltrame, The Canadian Press - Thursday, November 29, 2012 at 4:06 PM - 0 Comments

OTTAWA – A new report from Canada’s budget watchdog suggests the Harper government may spring a good news deficit surprise just in time for the next federal election.

Parliamentary Budget Officer Kevin Page’s new analysis on the government’s economic update budget projections suggests Finance Minister Jim Flaherty may be painting a bleaker picture than the current slowdown in the economy warrants.

On average, Page’s analysis shows the government may be overestimating the hit to its annual revenues and impact on expenses from a weaker economy by $4.7 billion a year over five years.

That would be enough of a difference to put the government solidly in a surplus position when the finance minister of the day delivers the pre-election budget in the spring of 2015. Instead, the official update anticipates the deficit will be balanced a year later, after the October 2015 election mandated by law.

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The danger of a Greek exit and why it matters to Canada

By Erica Alini - Thursday, November 22, 2012 at 2:57 PM - 0 Comments

of Photos

Trend to part-time work making it harder to qualify for EI

By The Canadian Press - Monday, November 5, 2012 at 3:12 PM - 0 Comments

OTTAWA – A trend towards more short-lived and part-time jobs has made it harder than ever for many Canadians to qualify for employment insurance benefits, even if they’ve contributed to the federal program, according to data released Monday.

Statistics Canada says only 78.4 per cent of Canadians who lost their jobs last year were eligible for benefits — the lowest rate since the agency started collecting comparable information in 2003.

It’s also down from 83.9 per cent who were eligible to collect benefits in 2010.

Put another way, less full-time permanent work means fewer employees who work enough hours to qualify for EI benefits.

“The share of these contributors who last worked in a permanent, full-time job — where one can generally have enough hours to qualify for EI — declined from 51 per cent to 45 per cent in 2011,” the agency said.

“At the same time, there was an increased share of those who last worked in temporary, non-seasonal work, where one generally accumulates fewer hours.”

To be eligible for EI benefits, contributors require from 420 to 700 hours worked, depending on the unemployment rate in their region. First-time employees, or those with limited work experience in the past two years, need 910 hours.

Economist Erin Weir, president of the Progressive Economics Forum, said the report shows the rules are not working for many Canadians who lose their jobs through no fault of their own.

“The case is quite compelling for the government to focus on making employment insurance benefits more accessible,” he said.

Bank of Montreal economist Doug Porter says the numbers could also be interpreted to show that fewer permanent full-time workers are losing their jobs — but he agrees that the more vulnerable workers are being left out in the cold.

“Often times, it is the last in, first out,” Porter said. “It shows that the people who are often let go first are the people least firmly attached to their jobs.”

Monday’s report found there was on average of 1.34 million people unemployed in 2011. Of those only 867,000 were contributors to EI and only 695,000 lost their jobs involuntarily and hence were eligible for benefits. And of those, 545,000, or 78.4 per cent, received benefits.

As a percentage of all unemployed, only 40.6 per cent were eligible for EI in 2011.

On average, the eligibility rate was highest for older workers, although the core 25-54 working age group also saw the eligibility rate fall from 89.9 per cent to 81.7.

But among youth, those more likely to be impacted by the higher first-time worker requirement, only 42.1 per cent were eligible in 2011.

Women were also highly impacted, with the eligibility rate dropping to 77 per cent from 84.4.

Weir said new more restrictive changes to EI rules introduced in this year’s budget will make it even more difficult for the unemployed to receive benefits in the future. The changes expand criteria under which the unemployed must accept work at the risk of losing their benefits.

The new data cuts against the grain of the government’s boasts about the strength of Canada’s labour market and the country’s social safety net.

Porter said Canada’s unemployment rate, stable at 7.4 per cent last month, doesn’t tell the whole story.

Although Canada has recovered all the jobs lost during the slump, and actually added about 380,000 on top of that, the other side of the coin is that the unemployment rate remains elevated and the number of employed rose to 1.4 million in October. That’s about 300,000 more jobless than in 2008.

“I think the big story in (Friday’s) employment report is we have the same unemployment rate we did a year ago, so we’ve basically stalled out. We’re still getting some job gains, but it’s only enough to keep up with the population (growth) and no better.”

Job gains stall in Oct., unemployment rate remains at 7.4 per cent

By Julian Beltrame - Friday, November 2, 2012 at 8:48 AM - 0 Comments

OTTAWA – Canada’s recent strong jobs performance slowed to a crawl in October, as the economy managed a meagre 1,800 new jobs, not enough to nudge the unemployment rate off 7.4 per cent.

But it was the surprisingly strong number south of the border that impressed markets and economists, with the U.S. reporting an above-consensus 171,000 additional jobs, all in the private sector. As well, employment for September and August were revised upwards.

“The big story today is the U.S. job numbers, which generally were better than expected,” said Doug Porter, deputy chief economist with BMO Capital Markets.

“We’re not pounding the ground on this one, but between the upturn in the housing sector in the U.S. and somewhat better jobs picture, there are more grounds for optimism and that will spill into Canada.”

The Canadian dollar jumped on the news and was up 0.29 to 100.61 cents US in early afternoon trading.

The muted Canadian performance was expected by economists, who calculated that following two outsized months when over 86,000 jobs were created, some payback was in order. The consensus was for a 5,000 gain, but some estimates were much higher and others predicted a decline.

Analysts reasoned with the economy known to be growing below two per cent, such month job increases were unsustainable.

In a statement sent to the media, Finance Minister Jim Flaherty took comfort in the fact there was still some life in the labour market, although he said too many Canadians still cannot find jobs.

“While this month’s numbers are modest, I’m pleased to see our economy continues to create jobs,” he said. “We have more than 820,000 net new jobs created since July, 2009, with most of those full time and in the private sector.”

Scotiabank economist Derek Holt called the report a mixed bag.

“The optimistic angle is that recent job growth has been retained against concerns that a pay-back would ensure,” he explained in a note to clients. “(But) That’s still possible over coming months.”

He added that a key discouraging factor was the drop in total hours worked by 0.3 per cent in October, which will weigh on average incomes.

Other elements of the Statistics Canada report also pointed to overall weakness.

Employment in the private sector — regarded as the most indicative of economic strength — fell by 20,300 jobs.

Those was offset by strong gains of 36,900 in the public sector while the self-employment category fell by 14,900.

The October result brings the total of jobs created in Canada over the past 12 months to 229,000, all full-time, for a gain of 1.3 per cent, slightly below the growth rate in the economy.

In testimony before House and Senate committees this week, Bank of Canada governor Mark Carney described Canada’s labour market record since the 2008-09 recession as better than most advanced countries, but still below par. He noted there are still more Canadians wanting work than jobs available and many Canadians in part-time work who desire full-time employment.

Statistics Canada said the biggest loss last month came in agriculture, which shed about 16,000 workers, while the biggest gain was in education services, which added 16,200. There was little change in the key industries of manufacturing, construction and natural resources.

Overall, the economy’s goods producing industries lost 19,300 jobs, while the services sector added 21,000.

Regionally, there were as many provinces reporting increases in employment as decreases. The biggest gain was in Quebec, which saw 20,100 jobs added, while the biggest loss came in British Columbia, which reported 10,900 fewer jobs.

There were some notable swings in provincial unemployment rates, mostly due to the distribution of the 18,000 additional Canadians who were looking for work in October, as opposed to job gains or losses.

The unemployment rate rose by more than half a point in Prince Edward Island, Nova Scotia, New Brunswick and Manitoba, while there were 0.3 percentage points drops in the rate in Quebec and B.C. to 7.7 and 6.7 per cent respectively.

Note to readers: This is a corrected story. An earlier version gave an incorrect dollar figure.

Don’t get too secure in household assets tied to home values, Carney warns

By The Canadian Press - Thursday, November 1, 2012 at 5:58 AM - 0 Comments

OTTAWA – Bank of Canada’s Mark Carney is advising Canadians not to get overly complacent about their financial security if it is tied to home values.

The bank governor told the Senate banking committee Wednesday the levels of household debt-to -income are elevated at about 163 per cent, and he is not comforted much by the fact household worth is also “very high.”

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Interest rates to rise before end of 2014, governor Mark Carney suggests

By Julian Beltrame - Wednesday, October 31, 2012 at 6:06 AM - 0 Comments

OTTAWA – Bank of Canada governor Mark Carney is suggesting interest rates will likely rise before the end of 2014.

It’s one of the clearest indications Carney has given as to when he might raise the bank’s key benchmark, which has been held at one per cent for more than two years.

Responding to a question in the Commons finance committee Tuesday afternoon, the bank governor said the bank’s current thinking was that monetary policy will need to be tightened before 2015.

Last week, Carney inserted the phrase “over time” to give markets guidance on when the bank’s trendsetting rate might be increased. Tuesday’s response was somewhat more detailed, but still pointed to no immediate plans.

“We have in this projection … some modest withdrawal of monetary policy stimulus over the course of the projection, which runs until the end of 2014,” he said. “In other words in advance of 2015.”

Carney added that whenever he does move, it will be when global and domestic factors dictate. And he reiterated his recent guidance that he will also take into account household debt in his decision.

At the moment, he said the country still needs super-low interest rates to stimulate the economy and create jobs.

Canada may have recovered all the jobs it lost in the recession, and added an additional 380,000, he said, but the economy still has a way to go before returning to what would be considered full employment.

“We are in still in position where there are more Canadians who want to work than are working, and the level of involuntary part-time (workers) is still elevated,” he explained.

“They illustrate a degree of slack that still exist in the labour market, which is one reason our monetary policy continues to be and should be accommodative.”

Most private sector economists have pencilled in late 2013 or early 2014 for the first bank action.

The bank governor was appearing before the committee to explain his latest economic outlook released last week that projected growth of 2.2 per cent for this year, followed by a 2.3 per cent advance in 2013 and 2.4 in 2014.

That is slightly more optimistic than the economists’ consensus estimate handed to Finance Minister Jim Flaherty on Monday for the government’s fall update projections, which will be released in a few weeks.

Carney continued to blame global factors for most of the drag on the economy. But he said government restraint is also contributing to slower growth, although not as much as some have suggested.

He estimated the public sector will contribute about 0.3 percentage points to growth in 2013 and 2014. That’s about half the historic level and well down from when Ottawa and provincial governments were pumping billions into the economy during the 2008-09 recession and early stages of the recovery.

“So it’s positive but not as much as previously,” he said. Government restraint was a modest 0.2 percentage point constraint in 2012, however, the bank report shows.

Carney even ventured to assess the economic impact of the destruction caused by superstorm Sandy, which early estimates put at $20 billion.

While the economy will take a hit immediately, over the long term needed reconstruction in the eastern U.S. states will largely recoup the losses.

“There are activities that can never be redone, for instance a visit to a restaurant. Then there is restructuring (which creates economic activity). In general, it tends to be a relatively negligible impact over time,” he said.

Waiting for Target: Canadian retailers retrench

By Mika Rekai - Tuesday, October 30, 2012 at 10:23 AM - 0 Comments

(Bill Sikes/AP Photo)

A dark cloud has been forming over the Canadian retail landscape this month. Hudson’s Bay Co., Shoppers Drug Mart and Loblaw Companies Ltd. have all announced major job cuts. HBC said it will be laying off 210 employees as it moves its information-services department from Toronto to Missouri. Shoppers Drug Mart cut 80 jobs from its head and regional offices. Last week, Loblaw said it is cutting 700 head-office jobs as it looks to streamline operations.

One of the causes: the U.S. retail juggernaut Target Corp., which is opening 189 locations across Canada and which will offer stiff competition in the pharmacy, clothing and grocery businesses. With more retailers looking to expand their offerings and lower prices (Loblaw has already been struggling with Wal-Mart Stores Inc.’s expansion into groceries), it’s getting harder for companies to distinguish themselves, says Kenneth Wong, a marketing professor at Queen’s University. But Wong suggests that the magnitude of the layoffs “suggests there is also something larger at play” than just bracing for Target, or the rising costs associated with drug reforms that Shoppers cited as the reason for its cuts. He says a slowing economy is the main culprit. And that’s bad news for Canadian retailers and U.S. invaders alike.

Slower growth to sap $22 billion annually from Canadian economy: PBO

By The Canadian Press - Monday, October 29, 2012 at 9:33 AM - 0 Comments

OTTAWA – Canada’s budget watchdog says slower growth will sap about $22 billion annually from the country’s economy.

Parliamentary Budget Officer Kevin Page says in a new report that he anticipates economic growth will brake to an annual rate of 1.6 per cent in the second half of this year, after slowing to 1.8 per cent in the first half.

He’s not much more optimistic going forward, forecasting tepid growth rates of 1.5 per cent in 2013 and two per cent in 2014.

That’s at the bottom of most economic forecasts and well below the Bank of Canada’s projections of growth rates of 2.2 per cent in 2012 and 2.3 and 2.4 per cent in the two years after that.

The PBO says the removal of government stimulus has robbed about one percentage point of growth from the economy.

At the weaker levels, the PBO says Canada’s nominal gross domestic product — from which Ottawa derives tax revenues — will be $22 billion lower annually.

The new forecasts have not wildly thrown Ottawa off track on its plans to return to balance, Page says, because of federal government spending restraints.

Page said Ottawa still has a 60 per cent probability of balancing the budget when it said it would in 2015-16.

Under his analysis, Page said Ottawa will go from an $18.1-billion deficit this fiscal year to a $13.8-billion surplus in five years.

International Monetary Fund chief says Canada should be economic model

By The Canadian Press - Thursday, October 25, 2012 at 10:42 PM - 0 Comments

TORONTO – The head of the International Monetary Fund says measures taken to protect Canada’s economy should be a model for countries trying to fix their financial systems.

Christine Lagarde said Thursday that Canada has been a leader in creating policies intended to rein in the build-up of household debt.

“Abroad, Canada is identified by its values of co-ordination and consensus building, which have given your country influence beyond its years,” she said.

“Building a safe and stable financial system is in the best interests of the global community, but it also serves the self-interest of nations,” she added.

Lagarde made the comments at a dinner held in Toronto by the Canada International Council — an organization created to promote Canada’s position on the world market.

She pointed to the decision by Finance Minister Jim Flaherty to boost down payments on new mortgages for homebuyers as an example of restraint that others should follow.

“All of these new reforms comprise the tools so far that will help us shape the future financial system,” she said.

“We must shape the system so it cannot again hold us ransom to the consequences of its failings.”

Lagarde’s speech focused on global financial reforms that while “heading in the right direction,” still haven’t delivered the safer financial system they were designed to create.

“Some financial systems are still under distress and crisis-fighting efforts are inadvertently impeding reforms,” Legarde said.

She singled out Basel III requirements as one of the financial reforms that had “generous implementation timetables,” that have been in development since 2010.

Under the proposed Basel III rules, a bank’s required capital levels must meet certain requirements, amongst other standards. The intention of the rules is to set a standard on key measures of a bank’s health and its ability to endure future economic downturns.

“There are many vested interests working against change and pushback is intensifying,” Legarde said.

“It is interesting how some banks say the new regulations will be too burdensome, but then spend hundreds of millions of dollars lobbying to kill them.”

Canadian banks have been proactive in reinforcing their balance sheets to meet the Basel III requirements ahead of schedule, and are widely considered a model for international banks because they weathered the global recession better than others.

“Most countries have committed to adopt some or all of the new regulations, and some have moved further ahead with their own national policies,” Lagarde said.

“The challenge now is to proceed to the end of the reform path all together.”

Canadian economic growth may be slower than expected, Flaherty says

By The Canadian Press - Thursday, October 18, 2012 at 4:55 PM - 0 Comments

OTTAWA – The federal government may need to downgrade its growth projections for the Canadian economy when it releases its mid-year budget update, Finance Minister Jim Flaherty said Thursday.

The minister told reporters prior to tabling his budget implementation bill that Canada’s economy is holding up reasonably well, but is not immune to gathering headwinds from around the world.

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Carney says he will be clear about interest rate hikes to stem debt problems

By The Canadian Press - Monday, October 15, 2012 at 12:58 PM - 0 Comments

NANAIMO, B.C. – Bank of Canada governor Mark Carney is promising that he will be transparent about any moves the bank makes to raise interest rates in the future.

In a speech delivered in Nanaimo, B.C., Carney said he intends to ensure that Canadians know exactly what the bank is doing and why.

“If we were to lean against emerging imbalances in household debt, we would clearly declare we are doing so and indicate how long we expect it would take for inflation to return to the two per cent target,” he said in notes released in Ottawa.

It was unclear whether Carney was setting the grounds for a policy shift, but the example he chose was telling in that it targeted the one aspect of the economy that he has described as Canada’s top domestic vulnerability.

It is unusual for the bank governor to speculate, even on a hypothetical situation. And in the past, he has said the federal government was the principal agent for discouraging Canadians against taking on bigger mortgages than they can realistically afford.

Earlier in the day, Statistics Canada revised its data on family finances showing that household market debt had risen to a record 163 per cent of disposable income, well above the 152 per cent previously reported using a less focused measure.

The federal government moved for a fourth time to curtain mortgage lending in August, but some economists argue that for policy to work long term, interest rates must rise. The bank has kept its trend-setting policy rate at one per cent since September 2010, which has lead to among the lowest borrowing costs in the country’s history.

In conclusion to his speech, Carney again underlined his intentions:

“The bank will take whatever action is appropriate to achieve the two per cent CPI inflation target over the medium term,” he said.

“That certainty is our contribution to ensuring that Canadians can invest and plan with confidence.”

However, throughout the speech, Carney lamented that uncertainty about the global economy and the intentions of governments were strangling the recovery by scaring off retail spending and business investment.

That is even true in Canada, he says, where conditions are much more stable and businesses have reasons to be confident the financial system will function even if times get tough.

Invoking Franklin Delano Roosevelt’s Depression era inaugural address that the only thing to fear was fear itself, Carney said Canadians need to make sure they are not letting uncertainty stand in the way of making good business decisions and compounding the problem.

“What we face now is better described as uncertainty rather than fear,” he said. “Nevertheless, the spirit of FDR’s comment applies — we must take care not to allow uncertainty to dominate our actions, letting profitable opportunities slip away and, more generally, compounding the very real, but still manageable, challenges facing the global economy.”

Canadians can’t save the euro currency, or the United States from going over a fiscal cliff, but the country has it within its power to make decisions that improve productivity and take advantage of the opportunities offered by emerging markets, Carney said.

Carney urged European policy-makers to act quickly and decisively to diminish uncertainty by setting in place a realistic three-to-five-year plan for reforming the eurozone, including creating a banking union and closer fiscal union.

And U.S. politicians must act to avoid the fiscal cliff in 2013, when trillions of dollars in tax increases and automatic spending cuts would automatically be triggered if policy-makers don’t reach a settlement. Without action, the U.S. economy would take a hit amounting to roughly four per cent of gross domestic product, Carney said.

“If authorities do not change these provisions, this massive fiscal drag will likely push the U.S. economy back into recession next year,” he warned. “That is not what we expect, but like others, we cannot be sure.”

Flaherty says U.S. likely to avoid fiscal cliff problem

By The Canadian Press - Wednesday, October 3, 2012 at 6:57 PM - 0 Comments

OTTAWA – Finance Minister Jim Flaherty is optimistic the United States will avoid the so-called fiscal cliff that many believe could trigger another recession in the world’s largest economy.

Flaherty said Wednesday he believes the congressional budget committee will arrive at a compromise on the US$600 billion in tax hikes and spending cuts set to automatically kick in January.

“There are enough members of the budget committee in the current Congress who totally understand the situation (and) I think they appreciate the urgency of the situation,” he said.

“This must be dealt with because if it is not dealt with, the effect on U.S. GDP (gross domestic product) will be very significant and that of course directly effects Canada.”

Economists estimate the hit to the U.S. economy from political deadlock on all measures could shave up to five percentage points from the country’s already weak output. Such a shock would impact not just the U.S., but also Canada through a loss of confidence and demand for exports.

Flaherty said the new president-elect, whether it is Barack Obama or Mitt Romney, will need to show leadership to avoid catastrophe.

Meanwhile, the minister says he is not as convinced that Europe has the wherewithal and the political structure to extricate itself from a long period of economic difficulty.

Flaherty, who will be meeting with his colleagues at the International Monetary Fund-World Bank fall meetings in Tokyo next week, called Europe “the clear and present danger” to the global economy.

But he has not changed his mind about joining the IMF’s emergency bailout fund, despite being under pressure from colleagues to ante up.

Europe is rich enough to deal with its debt problems without the help of outsiders, he said.

Part of the problem is that Europe lacks a single finance minister to represent the entity, which makes speedy action difficult, he said.

“I know my colleagues in Europe are trying to work on it. But the problem is they don’t have a central finance ministry so it’s taking time, but you know, time is finite.”

Speaking to reporters, Flaherty said he would table the second part of his budget implementation bill upon his return from Tokyo, likely during the week of Oct. 15.

As for Canada’s economy, the minister said he remains concerned it could be sideswiped by a European crisis. He said at the moment, the economy continues to expand, but modestly.

Traders watch Bank of Canada, ECB, Quebec

By The Canadian Press - Monday, September 3, 2012 at 11:37 AM - 0 Comments

TORONTO – The Canadian dollar could face severe cross-currents this week as traders look to the next rate announcement from the Bank of Canada, as well as results of the Quebec election and the latest jobs numbers.

Stock markets could also be volatile as traders also look to a rate announcement Thursday by the European Central Bank for definite moves to keep the lid on borrowing costs of the most vulnerable eurozone members, including Spain and Italy.

And the results of the August non-farm payrolls report could provide a clue as to whether the U.S. Federal Reserve thinks the economy is underperforming to a point where it could launch another round of stimulus.

There is no doubt among economists that the Canadian central bank will opt Wednesday to leave its key interest rate unchanged at one per cent amid a fragile global economic recovery and large parts of Europe in recession.

Traders will look to the central bank’s announcement for any indication as to when rates may rise but it’s not expected the Bank of Canada will change its language from the last announcement when it signalled an eventual tightening bias, indicating that rates would rise at some point.

“I suspect it will be more of the same for the bank,” said Doug Porter, deputy chief economist at BMO Capital Markets

“And the reality is that they, like everyone else, are likely waiting to see what unfolds in the critical events ahead in Europe, starting with the ECB meeting on Thursday.”

But ahead of that morning announcement, currency traders will already be digesting the results of Tuesday’s general election in Quebec and what it means to political stability.

The election campaign got very little, if any, notice on markets even as a CROP survey released Friday suggested that the PQ was the front-runner, leading by four percentage points in the popular vote.

“The risk is underpriced and (under) recognized right now,” said Camilla Sutton, chief currency strategist at Scotia Capital, noting that there are so many factors weighing on the loonie this week.

At the same time, traders would see the CROP survey also indicated support for sovereignty has dropped eight percentage points during the campaign, while the number of undecideds has increased to 10 per cent and support for Canadian federalism stands at 62 per cent.

The numbers in that survey peg support for independence well below the level it was at three decades ago, when 40 per cent of Quebecers voted “Yes” in a 1980 referendum.

The loonie could also be affected by Friday’s Canadian jobs data as economists think that 11,000 jobs were created during the month.

Stock markets buffetted this year by uncertainty as the eurozone debt crisis worsened could find some lift Thursday if the ECB unveils plans to launch another bond-buying program to keep borrowing costs under control. Ten-year bond yields in Spain and Italy pushed past the seven per cent level, which is considered unsustainable in the long run, earlier this summer.

Porter said it is possible the ECB move could be delayed “because there is a little bit of a game going on between the ECB and Spain, each waiting for the other to blink first,” said Porter.

“The view is that the ECB actually wants Spain to officially ask for assistance where Spain wants to see exactly what the ECB has up its sleeve so there is the possibility we don’t get a definitive answer next week. As long as the wait is perceived to be just a week or so.”

The week ends with the major economic report of the week, the U.S. August non-farm payrolls report. Economists forecast that the American economy likely created 127,000 jobs during August following an unexpected surge of 163,000 during July, while the jobless rate held stedy at 8.3 per cent.

The jobs data will provide an important clue whether the Fed will announce it is embarking on another round of stimulus, after Fed chairman Ben Bernanke said last week that the central bank will act to promote growth as needed.

U.S. stimulus hopes had risen in particular after the release in late August of minutes from the last Fed interest rate meeting Aug. 1 which said a growing number of members wanted to see the central bank do more to help the U.S. economy.

But economic data released since then, including better than expected job creation in July, rising retail sales and a recovering housing sector, actually point to a strengthening economy, meaning the Fed could find it hard to justify more easing, analysts say.

The Toronto stock market ended last week down 133 points or 1.1 per cent, leaving the TSX about even where it started the year.

Flaherty doesn’t rule out stimulus, but says Canadian economic growth on track

By The Canadian Press - Friday, August 31, 2012 at 9:12 PM - 0 Comments

TORONTO – Jim Flaherty isn’t ruling out stimulus spending to protect jobs and the economy in the event of another global economic crisis, but the federal finance minister stress that growth in Canada — while “modest” — is on track.

The Canadian economy grew at an annual rate of 1.8 per cent in the second quarter, Statistics Canada said Friday, while the government’s Fiscal Monitor showed its budget is closer to balance than it was a year ago.

Those figures had Flaherty singing the cautious praises of Canada’s GDP growth — the best among the G7 countries — while warning that global instability continues to loom.

And if the world is plunged into another crisis like the 2008 recession, growing the deficit through stimulus measures is an option, Flaherty said.

“What has been done before can be done again,” he said.

“If we ran into a serious world economic crisis arising out of the European situation, or something else … then of course we’d be responsive if we had to be, to protect the Canadian economy and protect Canadian jobs as we have done in the past.”

In early 2009, the federal government pumped up spending by about $50 billion over two years through tax cuts, income supports and fast-tracking infrastructure projects, among other measures, to limit the damage of the global recession.

Even so, the country fell into a nine-month recession and lost about 430,000 net jobs before halting the slide.

In its monthly Fiscal Monitor, released Friday, the Finance Department recorded a shrinking deficit for the first three months of the 2012-2013 fiscal year, but cautioned that the fiscal outlook is at risk of deteriorating.

The department said the deficit for the first three months of the 2012-13 fiscal year was $2 billion — less than half the $4.2-billion recorded for the same period last year. The department said that’s consistent with its plan to reduce the 2012-2013 deficit to $21.1 billion.

The 1.8 per cent second quarter GDP figure was slightly higher than economists’ expectations and nearly in line with the Bank of Canada’s projection of 1.9 per cent. But it was the third quarter in a row for sluggish economic performance below two per cent.

“Relatively speaking, Canada is in good shape. It’s just that there are risks in that big world out there and we’re part of the world,” Flaherty said.

Douglas Porter, deputy chief economist at BMO Capital Markets, called the GDP figure “nothing to write home about.”

“The economy is essentially growing right in line with the U.S. now and is still rising below potential,” Porter wrote in a note to clients.

Statistics Canada said business investment was mainly responsible for keeping the economy afloat from April to June — as if on cue in the wake of scoldings from the Bank of Canada and federal government, which recently chided companies for sitting on an estimated $500 billion in spare cash.

The agency said investment in plant and equipment grew at its fastest pace since this time last year, up 2.3 per cent from the previous quarter. Purchases of transportation equipment and industrial machinery were particularly strong.

“Particularly encouraging was the more than seven per cent investment growth in productivity, improving machinery and equipment. This is something I’d like to see more of going forward,” Flaherty said.

“As I’ve mentioned on numerous occasions, private-sector business investment is key to laying the foundation for a sustained, long-term expansion of Canada’s economy and job growth.”

Non-farm inventories surged during between April and June. Businesses increased their inventories by $15.2 billion in the second quarter — $7 billion more than in the first three months of the year.

But demand for exports slowed and imports rose substantially, dragging down overall growth.

In June, gross domestic product grew 0.2 per cent from May, propelled by output in the mining and oil and gas sector. Output declined in the wholesale and retail trade sectors, as well as manufacturing.

The Fiscal Monitor noted that, from April to June, federal revenues rose 4.7 per cent because of higher income tax payments and a hike in the Employment Insurance rate, while expenses rose at a more modest pace.

For the month of June alone, the deficit was $1.1 billion, compared with $2.3 billion for June 2011.

Canada’s GDP grows 1.8 per cent in Q2, a tad better than expected

By admin - Friday, August 31, 2012 at 9:28 AM - 0 Comments

The Canadian economy expanded by 1.8 per cent between April and June, according to Statistics Canada. The number was only a touch above the consensus forecast and just below the Bank of Canada’s projection of 1.9 per cent, but it was enough for Finance Minister Jim Flaherty to pat himself on the shoulder, saying that Canada continues to have the strongest economic growth among G7 countries. (For the record, we beat the U.S. by a “whopping” annualized 0.1 per cent this quarter, according to StatsCan.)

The lion’s share of our somewhat muted growth came from robust business investment, with companies investing in new equipment and stocking inventories. Investment in the housing sector, however, was unusually week, rising by less than two per cent annualized. As foreshadowed in earlier retail reports, Canadian consumers kept their wallets fairly tightly shut, with demand growing by a mere 0.3 per cent in the second quarter. The real drag, though, where exports, which edged up by only 0.2 per cent, far slower than imports, which soared 1.6 per cent.

Federal deficit shrinking for now, but Ottawa warns of trouble ahead

By The Canadian Press - Friday, August 31, 2012 at 9:27 AM - 0 Comments

OTTAWA – The federal government says its budget is closer to balance than it was a year ago, but warns that its solid fiscal performance may not last.

The Finance Department’s Fiscal Monitor says the deficit for the first three months of the 2012-13 fiscal year was $2 billion — less than half the $4.2-billion recorded for the same period last year.

The department says that’s consistent with its plan to reduce the 2012-2013 deficit to $21.1 billion.

But it also warns that a weak economy poses a mounting risk for the fiscal situation.

The economy has been sluggish and Statistics Canada is reporting that growth in the second quarter of 2012 was just 1.8 per cent at an annual rate.

From April to June, federal revenues rose 4.7 per cent because of higher income tax payments and a hike in the Employment Insurance rate, while expenses rose at a more modest pace.

For the month of June alone, the deficit was $1.1 billion, compared with $2.3 billion for June 2011.