By Tamsin McMahon - Thursday, May 2, 2013 - 0 Comments
Finance Minister Jim Flaherty has named Stephen Poloz the next governor of the Bank of Canada. The announcement shocked analysts who had thought that long-serving senior deputy governor Tiff Macklem was a front-runner. Poloz, head of the federal trade agency Export Development Canada, has a low profile in financial circles.
Here’s a primer on who he is and what he might bring to the job:
1. He is 57 and married to Valerie Poloz. The couple has two children.
2. He spent 14 years at the Bank of Canada, rising to chief researcher, before being appointed chief economist at Export Development Canada in 1999. He is currently the agency’s CEO.
3. During the 1990s, he was managing editor of the Montreal-based International Bank Credit Analyst, an influential financial publication that long warned against jumping into frothy, dot-com fuelled stock-market bubble before it burst.
4. He has also been a visiting scholar at the International Monetary Fund and the Economic Planning Agency in Tokyo.
5. He was previously rumoured to be on the short-list of candidates to replace David Dodge as Bank of Canada governor in 2008.
6. He warned early on of a potential for a major financial crash:
In 1998, after Long-Term Capital Management went bust, requiring a $3.6-billion U.S. government bailout, some analysts shrugged off the episode as the workings of a rogue hedge fund. Poloz was among those who predicted the fund’s failure was more likely a sign of a financial system that was working itself into a bubble built on complex and opaque derivatives, which would eventually require more bailouts. “I think there will be lots more” fund failures, he predicted in 1998.
7. … and then got it wrong after it happened.
In 2007, Poloz predicted the financial crisis would be short-lived. “A key source of comfort during the financial turmoil of recent weeks has been the consensus that the world economy remains strong,” he wrote in an analysis. “This is important, for it means that even if the financial contagion continues to spread, the world economy will prove resilient to the shock.”
8. He helped set the framework for Bank of Canada policies largely seen as successful in helping Canada stave off the worst of the global recession.
In 1994, while still at the Bank of Canada he co-authored a paper describing in detail the central bank’s approach to its medium-term forecasting. It may sound dull, but the paper was a critical step in the bank’s sweeping shift away from clandestine operations and toward more transparency in how it sets monetary policy.
It’s an approach strongly supported by outgoing governor Mark Carney and one that he has signaled he’s bringing to the Bank of England. Carney is a vocal a proponent of more communication and forward guidance from central bankers — signaling to investors where interest rates will likely be headed in the future —arguing that it can be calming on the markets and perhaps induce consumers to adjust their spending.
9. He disagrees with Carney on a few key issues.
Unlike Carney, who has criticized Canadian corporations for sitting on “dead money” instead of investing, Poloz warned in a 2011 speech that the stockpiles of cash were a “necessary insurance against the next black swan” in an era of deep uncertainty about the future of both the Canadians and the global economy.
Carney has also openly dismissed the “Dutch Disease” argument that Canada’s high “petrodollar” is harming the manufacturing economy. Poloz, on the other hand, has publicly warned that the rising Canadian dollar was harming the economy, mainly because it exacerbated the widening gulf between Eastern manufacturing-based economies and Western commodity-based ones.
He has cautioned that such economic divergence would become a long-standing problem in Canada and that similar conditions in the 1970s had led to “stagflation” when inflation rises rapidly but economic growth stalls.
“This two-speed economy thing is enormous,” he told a 2008 conference on how energy industry affects the economy, arguing that the Bank of Canada should pay more attention to the dollar’s exchange rate when setting interest rates.
10. Perhaps he’s so vocal because he initially got it so wrong when it came to the dollar:
In spring 2007, Poloz proclaimed that the Canadian dollar, then sitting at 94 cents, would fall to 84 cents U.S. by the end of the year because the weak U.S. and global economy would hurt demand for Canadian exports. “There is a global slowdown that is grinding through the system, and oil prices are probably going to drift lower rather than higher, and in that context you get the Canadian dollar going down not up.”
Instead, the dollar hit a high of $1.08 in November. It took roughly two years for his prediction to come true — the dollar dropped in 2009 — though the loonie has been stubbornly sitting around par since 2010, thanks largely to strong oil prices.
Some analysts rushed to describe Poloz as an “outsider” whose appointment signals a morale crisis at the Bank of Canada and a push by the Harper Conservatives for more control over monetary policy. Indeed, the Canadian dollar fell on news of his appointment. But Poloz could also be viewed as one of Harvard Business School professor Joseph L. Bower’s “inside outsiders” — the kind of leader who has both deep institutional experience and knowledge, but not so much that he’s become part of the establishment.
A good example of such a leader, according to the Harvard Business Review? Mark Carney.
By Aaron Wherry - Monday, April 29, 2013 at 1:22 PM - 0 Comments
While the Finance Minister will table the first budget implementation act of the year later today, the Parliamentary Budget Officer has released a new report on the impact of this year’s budget.
The PBO’s latest estimates on the impact of the 2013 budget handed down in March show the cumulative impact will be to reduce economic growth by 0.12 per cent and job creation by 14,000 by 2016. Combining the latest budget measures with the cutbacks unveiled in 2012 means there will be 62,000 fewer jobs in 2016, rising to 67,000 fewer in 2017, than might otherwise be the case without the cuts.
The PBO cautions the estimates do not mean the cutbacks will result in a loss of jobs, but that employment will be lower than it might have been absent the measures. In economic speak, that means that government spending will act as a drag on economic growth, rather than a stimulus.
Rest assured that however much smaller the government is made as a result of these cuts, there will still be someone on hand to make sure Laura Secord’s attire is appropriately depicted.
By Tamsin McMahon - Wednesday, April 17, 2013 at 7:17 PM - 0 Comments
The Internet exploded this week with the revelation that researchers from the University of Massachusetts had debunked the widely-accepted thesis from Harvard professors Carmen Reinhart and Kenneth Rogoff that a country’s economic growth could be pegged to the size of its government debt and that an economy would start to go off a cliff when a country’s debt-to-GDP ratio rose above 90 per cent.
The Massachusetts economists, Thomas Herndon, Michael Ash, and Robert Pollin, crunched data given to them by Reinhart and Rogoff for 20 countries and years from 1946 to 2010 and found that the economists had made a number of calculation errors, namely excluding several years when some countries had both high debt and high growth in GDP (mostly in the years after the Second World War.)
They also found that five of the 20 countries cited in the study had accidentally been dropped from the analysis because of a “spreadsheet error” that essentially involved Reinhart and Rogoff skipping the first five countries of the alphabet.
Correcting for the mistakes, the Massachusetts researchers found that annual GDP growth was, on average, 2.2 per cent for countries with debt-to-GDP ratios above 90 per cent. That is in stark contrast to Reinhart and Rogoff’s findings that GDP would instead fall by -0.1 per cent.
Reinhart and Rogoff are now being skewered by their critics, particularly because politicians (including our own) have repeatedly cited the 90-per-cent threshold when justifying austerity budgets and the mistakes open up the possibility that maybe deep cuts aren’t needed to kick start an economy after all. (“How Much Unemployment did Reinhart and Rogoff’s arithmetic mistake cause,” is how The Guardian newspaper put it.) Reinhart and Rogoff have apologized for the errors, but insist they don’t alter their central conclusions that more debt is bad for the economy.
More important for Canadians is the fact that Canada was one of the countries omitted from Reinhart and Rogoff’s analysis, thanks to being pretty high up in the alphabet. (The others were Australia, Austria, Belgium, and Denmark)
In fact, while the Massachusetts economists found that some countries (namely the U.S.) fit Reinhart and Rogoff’s model quite nicely, Canada doesn’t. Their analysis of 64 years of Canadian economic data suggests a fairly weak link between debt levels and GDP growth in this country. If anything, Canada’s economy actually grew with higher levels of public debt. It slowed when debt topped 90 per cent of GDP, but average growth in those years was still 3 per cent of GDP a year, well above the 2.2 average for the 20 countries in the study.
By Chris Sorensen - Tuesday, April 2, 2013 at 10:50 AM - 0 Comments
Stalled growth, rising debt — Canada’s stuck
Our latest cover story is actually two stories, comparing the state of the Canadian and American economies. View the companion piece to this story, here.
To outsiders looking in, Canada must seem like a potent place. In the midst of a global recession, our banks were profitable, home prices soared and lost jobs were quickly replaced—all feats Ottawa was fond of boasting about. “We have the soundest financial system in the world and that’s a strong point that we can share with others,” Finance Minister Jim Flaherty told reporters in 2008. A few years later, at the World Economic Forum in Davos, Prime Minister Stephen Harper promised to set the stage for a generation of economic growth with changes to immigration and a focus on selling oil and gas to Asia—part of a grand vision to make Canada an “emerging energy superpower.” The country’s new-found reputation for punching above its weight may have also played a role in the U.K.’s decision to hire Bank of Canada governor Mark Carney to run the Bank of England, the first time a foreigner has been sought for the job.
Carney doesn’t start his new gig until July 1. But already the holes in Canada’s narrative of economic exceptionalism are big enough to drive an oil sands dump truck through. Our banks, though still sound, have been downgraded by rating agencies because of their exposure to a potential Canadian housing bubble and high levels of consumer debt. Economists are worried that a pullback in government spending won’t be offset quickly enough by a ramp up in exports. And Alberta’s vaunted oil and gas sector is suddenly in trouble as a glut of new U.S. crude threatens prices and future investment. The stiff headwinds are reflected in GDP forecasts now expected to come in well under the previously anticipated (and already dismal) two per cent growth for 2013.
Canadians previously took pride in the fact that our small, resource-based economy was doing far better than that of our bigger neighbours to the south—Harper reminded CNBC viewers as recently as 2011 that Canada was still “outperforming the average, or the pack, in the industrial world”—but in the space of just few months the tables have seemingly turned. What happened?
By Jonathon Gatehouse - Tuesday, April 2, 2013 at 10:50 AM - 0 Comments
Jobs are returning, factories are humming — the U.S. economy is taking off
Our latest cover story is actually two stories, comparing the state of the Canadian and American economies. View the companion piece to this story, here.
For more than four decades now, John Sharp has been able to measure the economic health of America by gross output. When times are good, demand for the portable toilets his family business furnishes to construction sites in and around Orlando, Fla., surges. And when things cool off, all he has to do is look out his office window and count the green-and-white plastic huts to calculate how deep the markets are in the dumper. During the housing heights of 2007, his company, Comfort House Inc., had just 500 scattered around its four-acre parking lot. A year later, there were more than 3,000 lined up in neat rows like soldiers.
Over the past five years, Sharp has sold off equipment, cut his staff from 33 down to 11 and dipped deep into his credit line to keep the enterprise afloat. “This recession has been the worst,” says the 71-year-old. “It’s lasted the longest, and it took the biggest cut.” But now, finally, his business’s alimental indicator is showing a real increase, with fewer than 2,000 toilets left on the lot. For the last six months, Comfort House has been turning a profit again, and he’s invested in some new trucks and hired back four workers in anticipation of more to come. Local developers are acquiring land, the architects are busy, and so are the realtors, he reports. “It’s the residential sector that’s coming back. We’re still waiting on commercial,” says Sharp. “But Florida was so high, and then we fell so darned low, I’m happy just to be in the middle.”
It’s a sentiment that’s spreading among America’s bruised and battered consumers and corporations, as an economy—which has been growing sluggishly since the Great Recession came to an official end in June 2009—has suddenly turned vibrant. Job growth, which had languished at around 150,000 per month through last summer and fall, jumped to more than 200,000 in the lead-up to Christmas, and then topped 236,000 in February, the latest figure. (The national unemployment rate dropped from 7.9 to 7.7 per cent, a four-year low.) Industrial production that month rose 0.7 per cent, almost doubling the predicted 0.4 gain. And the last time U.S. factory workers put in longer workweeks than they did in February, they were churning out guns, tanks and bombs to fight the Second World War. Building permits jumped 4.6 per cent, and housing starts are now predicted to exceed one million for 2013, up more than 220,000 from last year. Auto sales have rebounded to pre-recession levels, while retail sales are also ticking up.
By Julian Beltrame, The Canadian Press - Monday, January 28, 2013 at 7:21 PM - 0 Comments
OTTAWA – The recession and subsequent weak recovery appears to have taken a bite…
OTTAWA – The recession and subsequent weak recovery appears to have taken a bite out of Canada’s top income earners — but they are still doing better than the rest and many suspect the setback is temporary.
Statistics Canada reported Monday that the top one per cent of the country’s 25.5 million tax filers earned at least $201,400 in 2010, accounting for 10.6 per cent of the nation’s total income — down from 12.1 per cent peak in 2006.
The latest data finds the biggest narrowing in the gap between to top one per cent and the rest occurred in 2008 and 2009, when the Canadian economy was in the midst of a deep recession and the stock market lost about half its value.
By 2010, however, the recession-effect on income disparity appeared to be diminishing. There was only a slight drop-off for the top earners — from 10.7 per cent to 10.6 per cent of the national income — between 2009 and 2010.
Andrew Sharpe, executive director of Centre for the Study of Living Standards, says he doubts the new data indicate a trend to greater income equality because top earnings are more dependent on investments and capital gains.
“It’s likely a cyclical phenomenon,” Sharpe said. “There’s a lot of forces in society that leads to the concentration of income. It’s hard to say what’s going to happen, but I wouldn’t say it will continue to fall for the top one per cent.”
Taken over a longer time frame, the latest research suggests that inequality between income earners has increased, in some cases dramatically, over the past three decades.
In 2010, the richest one per cent reported a median income of $283,400, or about 10 times greater than the $28,400 median for the other 99 per cent. By comparison, in 1982, the median income for the top one per cent was $191,600, or only seven times the $28,000 median for the rest.
The report also found:
— More women among the rich. There were 53,200 Canadian women in the one per cent club, or 21 per cent of the total, compared to only 11 per cent in 1982.
— The median age of the top one per cent of tax filers was 51 in 2010, a number that has changed little over the past 30 years. The median age for all tax filers increased to 47 from 36.
— The top one per cent paid 21.2 per cent of federal, provincial or territorial income taxes collected, up form 13.4 per cent in 1982. The share paid by the rest fell to 78.8 per cent in 2010 from 86.6 per cent in 1982.
Economist Erin Weir of the Progressive Economics Forum said the one per cent club appears to include more repeat members, suggesting less income mobility in Canada.
In 2010, 72 per cent of the top one per cent were club members the previous year, and 53 per cent had been there five years earlier. The comparable numbers for the 1980s are 67 per cent and 44 per cent respectively.
“One of the problems with a permanent upper class is that it doesn’t have much stake in the public school system or public health care,” he said.
“There’s also quite a bit of empirical evidence to suggest that societies with more inequality have worse health, shorter life spans and more criminal activity, even among rich people.”
Statistics Canada research shows that the vast majority of top earners come from Canada’s most populous provinces — Quebec, Ontario, Alberta and British Columbia — and most live in the biggest cities — Montreal, Toronto, Calgary, Edmonton and Vancouver.
And that is also where income inequality tends to be greatest, according to the Canadian Centre for Policy Alternative.
In its analysis of the data, the group says Calgary is by far Canada’s most unequal city with the top one per cent earning 26 times as much as the bottom 10 per cent.
By The Canadian Press - Friday, January 25, 2013 at 10:16 AM - 0 Comments
OTTAWA – Canada’s inflation remained barely visible for the second consecutive month in December,…
OTTAWA – Canada’s inflation remained barely visible for the second consecutive month in December, as consumers enjoyed one of the best years in terms of purchasing power since the recession, Statistics Canada said Friday.
The annual inflation rate remained 0.8 per cent in December, capping off a year in which price increases have been largely constrained by a weakened global economy.
On a month-to-month basis, Canadain prices fell outright by 0.6 per cent from November, as retailers also dropped sticker prices on clothes and footwear in an effort to attract Christmas shoppers. Continue…
By Aaron Wherry - Tuesday, January 15, 2013 at 4:37 PM - 0 Comments
The NDP leader’s tie was a combination of black, grey and orange stripes. This was possibly coincidental, but the placard propped up on an easel behind him followed the same colour pattern: “Leaders Summit 2013″ emblazoned beneath three maple leaves, one black, one grey and one orange.
Placards and colour coordination are the hallmarks of professionalism in modern politics. Rarely does the Prime Minister appear anywhere without a blue sign hanging in front of him on which is written the two or three words that we are supposed to commit to our subconscious that day. (In Mr. Harper’s ideal world the first words that would come to mind upon seeing his face or hearing his voice would be “jobs,” growth” and “long-term prosperity.”) The New Democrats have picked up on this trick and now have their own placards. Today’s was more of a sign, as if to demonstrate that here was an important thing happening—please note that what is going on beyond this sign and behind those doors is of such a serious nature that a sign is required to indicate as much.
The gathering in this case—the nation’s provincial and federal NDP leaders meeting on Parliament Hill to ruminate and be seen to be ruminating —was some combination of a first ministers’ conference and a corporate retreat.
“The NDP is very proud of its track record of prudent public administration in the five provinces and the territory where it has been in power. And that’s what we’re going to be doing today. Sharing best practices. Looking at the best way forward. Sharing ideas for the future of Canada based on better cooperation between the provinces and the federal government.”
Prudent public administration and sharing best practices: Mr. Mulcair seems to like to talk like this. It is possibly helpful for the purposes of not sounding like a hippy socialist who will spend the entirety of the defence budget on fair trade espresso beans for his friends in the union. Continue…
By Julian Beltrame - Friday, January 11, 2013 at 12:34 PM - 0 Comments
OTTAWA – The global slowdown hit Canada’s export-oriented economy hard, driving the country’s trade…
OTTAWA – The global slowdown hit Canada’s export-oriented economy hard, driving the country’s trade deficit to $1.96 billion in November, the third worst result in history in nominal terms.
The size of the deficit was far bigger than the $600 million forecast by analysts and well above an upwardly revised $552 million shortfall in October.
The picture was even drabber in the United States, which saw it’s trade deficit expand by 15.8 per cent to $48.7 billion in during the month.
Economists said Canada’s trade imbalance all but confirms the economy had another weak quarter in the last three months of 2012, with some saying it could approach one per cent, about half the natural cruising speed. Continue…
By The Associated Press - Friday, January 11, 2013 at 10:20 AM - 0 Comments
WASHINGTON – The U.S. trade deficit expanded in November to its widest point in…
WASHINGTON – The U.S. trade deficit expanded in November to its widest point in seven months, driven by a surge in imports that outpaced only modest growth in exports.
The Commerce Department said Friday that the trade gap widened 15.8 per cent to $48.7 billion in November from October.
Imports grew 3.8 per cent to $231.3 billion, led by gains in shipments of cellphones, including Apple’s new iPhone.
Exports increased only 1 per cent to $182.6 billion. And exports to Europe fell 1.3 per cent, further evidence of the prolonged debt crisis that has gripped the region. Continue…
By The Canadian Press - Monday, December 10, 2012 at 8:56 AM - 0 Comments
OTTAWA – Canada Mortgage and Housing Corp. says the pace of housing starts fell…
OTTAWA – Canada Mortgage and Housing Corp. says the pace of housing starts fell in November for a third straight month.
The agency says there were 17,646 actual starts last month, which translates to a seasonally adjusted annual rate of 196,125 units, down from 203,487 in October.
The decrease was mainly attributed to declines in single-detached and multi-unit housing construction in Ontario and British Columbia.
A 45.6 per cent drop in starts in Atlantic Canada was primarily due to a decrease in multi-unit housing construction in Halifax, following higher than normal activity in October.
The seasonally adjusted annual rate of urban starts decreased by four per cent to 174,323 units in November, with urban single starts off by 5.4 per cent to 58,606 units and urban multiple starts down 3.2 per cent to 115,717 units.
November’s seasonally adjusted annual rates of urban starts fell 14.3 per cent in Ontario and 16.5 per cent in British Columbia, but rose 15.4 per cent in Quebec and 16.1 per cent in the Prairies.
By The Canadian Press - Friday, November 23, 2012 at 1:19 PM - 0 Comments
OTTAWA – The country is about to pass a red-ink milestone that the Canadian…
OTTAWA – The country is about to pass a red-ink milestone that the Canadian Taxpayers Federation says is completely unnecessary.
The national debt is set to reach $600 billion just seconds before 11:19 p.m. ET Saturday, says the federation, which has set up a “debt clock” to let everyone view the event online.
That works out to nearly $17,200 for each person in the country.
It should never have reached that level, said federation director Gregory Thomas, who blamed the Harper government’s economic stimulus and other spending for the historic debt level.
The stimulus spending was unnecessary, Thomas told a Friday news conference.
“The economy bounced back and … we’re going to be paying those stimulus dollars 20, 30 years from now if we don’t get our act together.”
At the current rate, Canada’s national debt is rising by $74.6 million a day, or $863.27 every second.
The government says the spending under its so-called economic action plan was necessary to maintain and create jobs during the worst economic downturn since the Great Depression.
But much of it was wasteful, said Thomas, who took particular aim at the government’s advertising spending.
“You can’t sit through a football game without seeing all this propaganda about what a terrific job the government’s doing,” he said.
“They’re borrowing money to sell Canadians on themselves.”
And the debt will keep climbing as long as the Harper government keeps spending beyond its means, the federation said.
The federation did applaud Finance Minister Jim Flaherty’s commitment to balance the budget before the next election.
Still, Flaherty acknowledged last month that the fallout from the recession will prevent Ottawa from erasing the debt by 2021.
The minister said the government continues to search for ways to cut spending as he prepares a 2013 budget.
But as with previous budgets, Flaherty has ruled out both tax increases and cuts to provincial transfers.
By Aaron Wherry - Tuesday, November 20, 2012 at 5:23 PM - 0 Comments
The Scene. Peggy Nash had asked why the Prime Minister wouldn’t be in Halifax on Friday to meet with the premiers—”Since the Prime Minister is rarely here on Friday…”—and Jim Flaherty had duly enumerated all of the conversations the Prime Minister has had with the premiers these last seven years and now Ms. Nash was apparently done playing nice.
“Mr. Speaker, the fact is the premiers of this country are getting together to discuss, among other things, the economy, but the Prime Minister is refusing to join them,” she prefaced. “According to the IMF, we will have fallen behind the U.S. in growth by 2015. Greece’s economy is expected to grow faster than ours.”
The Conservatives across the way burst into laughter. The Speaker was obliged to call for order. Continue…
By Malcolm Morrison, The Canadian Press - Tuesday, November 20, 2012 at 1:35 PM - 0 Comments
TORONTO – The Canadian dollar was slightly lower late morning Tuesday while traders looked…
TORONTO – The Canadian dollar was slightly lower late morning Tuesday while traders looked ahead to a speech by U.S. Federal Reserve chairman Ben Bernanke later in the day.
The loonie dipped 0.06 of a cent to 100.28 cents US after running ahead almost half a US cent Monday.
However, analysts say the speech is likely to produce weakness in the greenback as Bernanke is likely to remind markets that the Fed will expand its quantitative easing program in December to help along a slow U.S. economic recovery. QE involves the central bank printing money to buy up bonds.
The Fed has been purchasing $40 billion per month of mortgage-backed securities since September and the central bank has signalled the program won’t end until there is a substantial improvement in the labour market.
Analysts believe the Fed will expand the program to include outright purchases of Treasury bonds.
Also focusing traders Tuesday was Moody’s Investor Services’ downgrade of France’s AAA credit rating. Moody’s cited concerns over its prospects for economic growth and its exposure to Europe’s financial crisis. S&P had also downgraded Europe’s second-biggest economy in January.
Meanwhile, European Union officials will make a fresh try Tuesday to reaching a political accord on desperately needed bailout loans to Greece.
Greece is still waiting for a €31.5-billion loan, the latest instalment of bailout money which is keeping the country afloat. The loan was due to have been signed off last week but a meeting of the finance ministers from the 17 European Union countries that use the euro failed to agree on how to get Greece’s bailout program back on track.
Commodity prices were mixed following big gains on Monday with the January crude contract on the New York Mercantile Exchange giving back some of the strong gains registered over the past two sessions, down $1.75 cents to US$87.53 a barrel. Prices had run up sharply on worries that fighting between Israel and Hamas could spread, jeopardizing shipments of oil from the Mideast.
December copper was unchanged at US$3.53 a pound following an eight-cent jump Monday.
December bullion was down $3.40 to US$1,731 an ounce.
By Colin Campbell - Wednesday, November 14, 2012 at 8:10 AM - 0 Comments
A monthly scorecard on the state of the economy in North America and beyond
Whatever faith there was left in the Canadian economic miracle, it is fast eroding. Everyone from bank economists to the parliamentary budget officer to the International Monetary Fund is cutting growth estimates. Last week’s report that GDP shrank in August by 0.1 per cent puts the annual growth rate somewhere below two per cent. The results are much the same in the U.S., where growth was two per cent last quarter, up from 1.3 per cent.
Diehard optimists will say any growth is good growth. But today’s climate is starting to feel suspiciously like a recession again.
In the U.S., recent growth has been attributed to a blip in government defence spending. Business investment hasn’t been as weak since 2009. In Canada, growth hangs on the prospect that manufacturing and mining will pick up steam again. How realistic is that? With 10 of 18 industries showing declining output in August, the GDP drop “was no fluke,” said Bank of Montreal chief economist Douglas Porter in a note. “The main message here is that the economy is struggling to churn out any growth whatsoever.” Continue…
By Julian Beltrame, The Canadian Press - Tuesday, November 13, 2012 at 1:33 PM - 0 Comments
It will take a year longer than predicted to balance the budget
OTTAWA – Canada will miss its deficit targets in each of the next four years, because global economic weakness has carved into commodity prices and tax revenues, Finance Minister Jim Flaherty said today.
His fall economic update showed a bottom line worse than many expected, with the deficit at $26 billion, up $5 billion from the March budget forecast.
Flaherty also said it will take a year longer than predicted to balance the budget.
“Canada has clearly been affected by volatile and falling world commodity prices since the budget in late March,” he said in notes for a speech to a Fredericton business audience.
“And the forecast of private sector economists is consistent with the view that world commodity prices will remain below the level anticipated at the time of the budget.”
Because of the weakness, the government expects revenues to be on average $7.2 billion below what it had counted on in the budget during the five-year horizon period.
Flaherty made clear that he remains on track in keeping government costs down. Program expenses edge down as a percentage of the country’s gross domestic product during the period.
But the numbers show the government can’t overcome the lower revenues, which were first noticed in the final accounts of last year’s budget period. They carry on this year and into future years.
Ottawa now projects its deficit will rise to $26 billion this fiscal year, which ends in March, as opposed to the predicted $21.1 billion. Going forward, the deficit is now projected at $16.5 billion next year, compared with the budget estimate of $10.2 billion, and $8.6 billion in 2014-15, as opposed to $1.3 billion.
The March budget anticipated a $3.4 billion surplus in 2015-16, but now Flaherty expects a $1.8 billion deficit that year. The new calculation is that Ottawa will finally show a surplus of $1.7 billion in 2016-17.
The projections do include a $3 billion margin of error, or so called “risk adjustment,” so it is possible that Ottawa could still come in on target if those risks do not materialize, or if the economy performs better than expected.
In his speech, Flaherty cautioned that the world is full of risks and again expresses concern about a U.S. fiscal crisis if Congress and re-elected President Barack Obama cannot come to an agreement before Jan. 1.
But he also said there is also some cause for optimism, in which case both the Canadian economy and government finances will improve.
“Growth in Canada could be significantly stronger than expected if the United States policy-makers are able to reach an agreement to avoid the fiscal cliff in 2013, while implementing a medium-term plan to reduce their debt and deficit,” he said.
By The Canadian Press - Tuesday, November 13, 2012 at 10:38 AM - 0 Comments
TORONTO – A wave of retirements among business owners over the next few years…
TORONTO – A wave of retirements among business owners over the next few years could pose a significant risk for the Canadian economy as the country undergoes the biggest transfer of economic control in its history, according to CIBC World Markets.
CIBC says half of all small- and medium-sized businesses in Canada are set to retire over the next decade, including 310,000 that plan to transfer control fo their companies within the next five years.
“The economic implications of the accelerated pace at which firms are changing hands should not be underestimated,” CIBC deputy chief economist Benjamin Tal said in the report issued Tuesday.
An estimated $1.9 trillion in business assets are poised to change hands in five years — the biggest transfer of Canadian business control on record, CIBC says.
And by 2022, this number will mushroom to at least $3.7 trillion as 550,000 owners exit their businesses.
“Given this magnitude, a faulty or badly executed succession planning process could have a ripple effect throughout the Canadian economy via reduced productivity, job losses, premature sales and increased bankruptcy rates,” the CIBC World Market report said.
It noted that companies that will see a change ownership in the next five years currently employ close to two million people and account for at least 15 per cent of gross domestic product.
That means planning for ownership succession is no longer just a micro issue that impacts the businesses involved, but increasingly a macroeconomic issue capable of affecting the growth potential for the whole economy, the report said.
“The sheer number of business owners that will retire in the coming decade is turning this micro issue into a potentially damaging macro problem,” Tal said.
He says survey after survey has shown that business owners are ill-prepared for the inevitable ownership transition that is quickly approaching.
Often its only dealt with in emergency situations such as the death or illness of an owner or partner or when a new partnership is needed following a cash-flow crisis.
“More often than not, the inability to agree on a well-defined succession plan is an indicator of even deeper problems such as the lack of a clear business plan,” Tal said.
CIBC said that close to 60 per cent of business owners aged 55 to 64 have yet to start discussing exit plans with their family or business partners.
“At this stage of the game, a small businesses’ principle strength — the reliance on the human capital of the owner in almost every aspect of the business — is also becoming its primary weakness. Adequate succession planning requires time and is often measured in years, not days or months.”
By The Canadian Press - Monday, November 5, 2012 at 9:49 PM - 0 Comments
OTTAWA – Finance Minister Jim Flaherty says Canada’s closest ally and trading partner, the…
OTTAWA – Finance Minister Jim Flaherty says Canada’s closest ally and trading partner, the United States, has replaced Europe as the biggest threat to the domestic economy.
The minister made the comment Monday evening on a conference call after wrapping up two days of meetings with his G20 counterparts in Mexico City, which had a mood he described as serious but not “doom and gloom.”
Europe’s troubled finances and the U.S. fiscal cliff have both been hanging over the global economy for months, but Flaherty said the U.S. situation now potentially packs the bigger potential wallop.
“I think the difference we have now is that the European leadership is starting to take some concrete actions with deadlines, and that’s quite encouraging,” he explained.
“And more importantly, we’ve got less than 60 days for this fiscal cliff to be resolved in a very difficult political climate in the United States. Now it’s going to require breaking through that political gridlock … otherwise the consequences are dire.”
Flaherty said failure to avoid the so-called cliff — the automatic lapse of about $600 billion in government spending and tax cuts that represents about four percentage points of U.S. economic growth — would push America into recession, with Canada likely to follow.
He said the U.S. Congress must reach a compromise regardless of who — President Barack Obama or challenger Mitt Romney — is elected Tuesday.
Earlier, the G20 ministers and central bankers issued a communique calling on the world’s largest economies to reject protectionism and currency manipulation, and called on the U.S. to “carefully calibrate the pace of fiscal tightening to ensure that public finances are placed on a sustainable long-run path, while avoiding a sharp fiscal contraction in 2013.”
The communique made clear the world remains hobbled by moderate growth expectations and a mountain of risks, including weaker growth in some emerging economies and additional supply concerns in some commodity markets.
That sober finding still left space for some optimism, Flaherty said.
“It’s looking a little bit better in Europe, it’s looking a little bit better in the United States, the emerging economies still have significant growth,” he said.
“So it wasn’t doom and gloom, it was cautious though.”
One of the bright spots, he said, is the recovery in the U.S. housing market, which is already stimulating the lumber industry in British Columbia.
Flaherty said he achieved one of his goals prior to the meeting: securing an agreement to establish a regime whereby G20 nations will “publish” their records on meeting commitments they have reached.
One of those commitments was the target made in 2010 to halve national deficits by 2013. Many countries, including the U.S., will miss that goal. The G20 officials decided it was appropriate to loosen the hard target on some countries to support growth.
Flaherty also said he discussed the challenge Canada faces in coping with foreign investments in the resource sector, particularly from state-owned enterprises.
On Friday, Ottawa extended for the second time its review of Chinese-owned CNOOC’s $15.1 billion takeover of Calgary oil producer Nexen Inc.
“Some countries have struggled with it and I had actually some very good discussions with them about how they approached the issue, how they managed it,” he said.
He added that there was no suggestions from his colleagues to questions of whether Canada remains open for business.
In other declarations, G20 officials moved to head off concerns that China or some other countries may resort to manipulating their currencies in order to support exports.
“We reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, avoid persistent exchange rate misalignments and refrain from competitive devaluation of currencies,” the officials said.
The G20 represents most of the world’s biggest economies, including some with fixed currencies like China.
As well, Germany and the United Kingdom proposed that the world’s biggest economies form a common front against tax evasion related to Internet commerce and other revenue-shifting schemes, and said they received strong support at the meeting of officials from the G-20 nations.
— With files from The Associated Press
By Aaron Wherry - Monday, November 5, 2012 at 1:26 PM - 0 Comments
Kevin Carmichael checks one of the Harper government’s favourite rallying cries.
While a valid bragging point in the aftermath of the financial crisis, Canada no longer is an economic standout among its peers. The International Monetary Fund identifies 35 countries as “advanced economies,” ranging from Australia to the United States. According to the IMF, Canada’s gross domestic product will expand by a little less than 2 per cent in 2013. That bests only European economies coping with the recession in the euro zone. Australia, Estonia, Hong Kong, Iceland, Israel, South Korea, Malta, New Zealand, Norway, Singapore, the Slovak Republic, Sweden, Taiwan, and the U.S. all are forecast by the IMF to outpace Canada next year…
Mr. Flaherty can accurately say that Canada’s growth is projected to be strong compared to a group of recessionary European countries. He can no longer accurately put on positive spin on Canada’s mediocre economic performance by seeking out favourable international comparisons. At best, Canada is in the middle of the pack.
By Steve Rennie, The Canadian Press - Tuesday, October 30, 2012 at 3:44 PM - 0 Comments
OTTAWA – Growth in health-care spending is forecast to continue to slow this year,…
OTTAWA – Growth in health-care spending is forecast to continue to slow this year, largely because of a sluggish economy and budgetary deficits, says a newly released report.
The report, from the Canadian Institute for Health Information, says health-care spending is expected to increase by 3.4 per cent this year, after rising at an average of seven per cent a year during the period from 1998 to 2008.
That would make 2012 the year with the lowest rate of growth since the mid-1990s.
“We’re in a period of more modest economic growth times these days,” Christopher Kuchciak, CIHI’s manager of health expenditures, said in an interview.
“With slower growth, as well as government budget deficits that we see across the country, the focus seems to be nowadays more on cost control and cost containment.”
The report shows health-care costs have doubled in the past decade, and are expected to reach $207 billion this year — up from $200 billion last year.
One of the biggest drivers of the rising costs in recent years has been the fees paid to physicians. However, the report says payments to physicians are expected to increase by 3.6 per cent this year, while hospital spending is forecast to grow by 3.1 per cent — the lowest rates of growth since the late 1990s.
The growth rate for drug spending is also expected to be down from last year. The slowdown is part of a decade-long trend that’s likely a result of fewer drugs coming onto the market, blockbuster drugs coming off patent and provinces and territories putting in place generic price controls, the report says.
Kuchciak said this latest slowdown in growth stands in contrast to the mid-1990s, when people worried about fewer hospital beds and staff.
“There was that period in the mid-90s when we saw that cost constraint and budget deficit and cost-control measures,” he said.
“It looks like we’re entering another period where money is tight and people are looking at cost-effective ways — rather than going back to the mid-90s, when there were more drastic measures taking place.”
The provinces and territories are expected to spend $135 billion on health care this year. The report says spending varies across the country. Spending per person is highest in Newfoundland and Labrador and Alberta, and lowest in Quebec and British Columbia.
The report notes an aging population was responsible for just 0.9 per cent of the cost increases between 2000 and 2010.
“We hear a lot about this grey tsunami … that’s just going to swamp the health-care system,” Kuchciak said.
“But what we’re seeing is, really, population aging is more like a glacier. It moves, but it moves slowly and the health-care system can evolve. And we do see steps being taken by those policy-makers and decision-makers to evolve and change the way they deliver health care in order to control those costs.”
By The Canadian Press - Monday, October 29, 2012 at 12:06 PM - 0 Comments
OTTAWA – Finance Minister Jim Flaherty says lower commodity prices are impacting his government’s…
OTTAWA – Finance Minister Jim Flaherty says lower commodity prices are impacting his government’s revenues, but not enough to derail its deficit elimination plans.
The finance minister made the assessment after consulting with private sector economists on Monday morning on the state of the economy.
The new consensus is that the nominal value of the economy will be $21 billion lower than budgeted for this year, and $29 billion lower both next year and the following year.
Flaherty says commodity prices for exports such as oil have been about five per cent lower than expected, impacting corporate profits and wealth creation as well as tax revenues.
According to one economist, that will translate into a $1.8-billion hit for the government this year.
The conclusion is similar to that reached by Parliamentary Budget Officer Kevin Page in a report earlier Monday that estimated the annual nominal gross domestic product of the country would be about $22 billion less than anticipated.
But analysts note that Flaherty took steps to plan for a downward surprise in his March budget, so the government remains on track to balancing the budget in 2015-16.
The minister would not be as definite, repeating language he has used for months that the deficit will be eliminated in the mid-term.
Flaherty says he will issue a revised budget projection when he tables the fall economic update in a couple of weeks.
By The Canadian Press - Tuesday, October 23, 2012 at 9:36 AM - 0 Comments
OTTAWA – The Bank of Canada is keeping its trendsetting policy interest rate at…
OTTAWA – The Bank of Canada is keeping its trendsetting policy interest rate at one per cent for a while longer, and likely a whole lot longer.
The central bank said the Canadian economy continues to expand, but that housing activity is starting to decline and exports remain weak.
Still, the bank said growth will average 2.2 per cent this year, one-tenth more than it had projected in July.
Analysts had been expecting bank governor Mark Carney to soften his hawkish tone about future interest rate hikes and he obliged, saying modest withdrawal of stimulus will be required over time.
That suggests the time may be a long way off.
The bank also notes it will consider the health of the household sector in setting monetary policy, something it hasn’t done in previous interest rates announcements.
By Julian Beltrame, The Canadian Press - Friday, October 19, 2012 at 10:21 AM - 0 Comments
OTTAWA – It cost a little more to fill up at the gas pump…
OTTAWA – It cost a little more to fill up at the gas pump and to buy the new winter fashions, but consumer prices remained relatively tame in September and there were few signs of price pressures in the future, Statistics Canada reported Friday.
Canada’s annual inflation rate stayed at 1.2 per cent, matching the previous month and May for the lowest level in more than two years.
On a month-to-month basis, prices rose 0.2 per cent as gasoline prices climbed 2.1 per cent from August and clothing increased 6.2 per cent as retailers unveiled their fall and winter merchandise.
For the annual inflation rate, the agency said an increase in prices for gasoline and electricity were the main contributors, but they were offset by declines in the cost of purchasing motor vehicles and women’s clothing.
There was still no sign of the impact of this summer’s drought in the U.S. and parts of Canada on overall food prices, which in September were a modest 1.6 per cent higher than last year.
On a month-to-month basis, food prices actually fell 1.1 per cent in September, led by seasonal declines in fresh vegetables and fruit.
The Bank of Canada’s core rate, which measures underlying price pressures by excluding volatile items such as gasoline, declined three-tenths of a point to 1.3 per cent.
The report, which was broadly in line with economist expectations, will likely play little role in the Bank of Canada’s interest rate decision next week. If anything, the bank is likely to judge that it must keep interest rates low in order to meet its goal of lifting annual inflation to the desired two per cent target in the medium term.
Analysts are expecting bank governor Mark Carney to move from a bias towards tightening money supply to more neutral language in his analysis, which would signal to markets he considers the economy will require a stimulative policy for some time still.
On an annual basis, Statistics Canada said gasoline prices were 4.7 per cent higher last month from September 2011, and electricity costs rose six per cent — the two main contributors to the 1.2 per cent inflation rate.
Dampening inflation, natural gas fell 14.2 per cent, mortgage costs were 2.2 per cent lower, video equipment prices fell 14.6 per cent, and motor vehicles declined 1.8 per cent.
The agency said there was an average 3.7 per cent increase for post-secondary tuition across the country, despite Quebec’s freeze in fees. Tuition costs rose highest in Saskatchewan, up 5.8 per cent.
Regionally, prices in Ontario and British Columbia rose the least in September at 0.7 per cent, the agency said.
By Aaron Wherry - Friday, October 5, 2012 at 11:45 AM - 0 Comments
Stephen Gordon skewers a Conservative talking point.
Sectors that cannot absorb the tax will see declining employment, and employment in the other sectors would grow. If the tax is introduced gradually, these shifts will absorbed into the usual flows in and out of employment, and total employment wouldn’t be affected even in the short run.
To the extent that a carbon tax will reduce employment in certain sectors, then yes, it “kills jobs.” So does a cap-and-trade system. And more importantly, so do regulations. Just as with a carbon tax and cap-and-trade, the regulatory approach that the Conservatives now prefer increases the cost of doing business. Some sectors will be able to adapt to this, some will not. Same with a carbon tax.
By Aaron Wherry - Wednesday, September 26, 2012 at 11:30 AM - 0 Comments
Jim Flaherty again encourages the private sector to spend.
In his speech, the minister conceded that business investment had picked up of late, but “more needs to be done,” he told the audience.
He noted that government had done its part, slashing corporate taxes, eliminating tariffs, introducing monetary inducements to encourage the purchase of new technologies, reducing red tape and concluding some 20 free trade and investment protection agreements around the world. “The government cannot do this alone,” he said. “Private sector business investment must also help lay the foundation for a sustained, longer-run expansion of Canada’s economy and jobs growth.”
According to KPMG, Canada has the lowest corporate tax rate in the developed world.
Mr. Flaherty made similar comments last month.