Explaining Canaccord’s drastic cutback in Canada

By Chris Sorensen - Tuesday, September 25, 2012 at 6:08 PM - 0 Comments

Getty Images

Canaccord Financial’s recent decision to shutter half of its 32 branches in Canada underscores just how competitive the wealth management business in Canada has become—at a time when there’s not a lot of money to be made from it. The obvious culprit is persistent uncertainty about the global economy, which has kept nervous investors on the sidelines. At the same time, it has also caused companies to hold off on share offerings, creating a sort of double whammy for firms like Canaccord, one of the country’s last remaining independent full-service brokerages.

Under normal circumstances, however, none of this would be a particular cause for concern since stock markets are cyclical. Once the bull market returns, so too will investors. But Canaccord has also found itself squeezed by Canada’s big banks, which have used their giant war chests to pile into the wealth management space—a business that is seen as relatively low risk (unlike investment banking) because of its fee-based compensation structure. The result? Too many advisors chasing too few clients, which is eating into everybody’s profits.

But that doesn’t mean the business model is broken. Far from it. And Canaccord indicated as much by buying the private wealth management division of the U.K.’s Eden Financial Ltd. on the same day it made its Canadian cuts. It also purchased another U.K. firm in December. In other words, for Canaccord, there’s still money to be made in wealth management. Just not in Canada.

‘The greatest challenge we face today is not a failure of ability, it is a failure of leadership’

By Aaron Wherry - Thursday, September 20, 2012 at 1:45 PM - 0 Comments

Thomas Mulcair’s speech in the House this morning to begin debate on the NDP’s motion.

Monsieur le Président, je vous remercie de la lecture que nous venez de faire de la motion dont il serait question aujourd’hui. Je dois vous dire à quel point c’est important pour nous en tant qu’opposition officielle de rappeler que le thème principal lors de la dernière campagne électorale était, en ce qui nous concernait, résumé en deux: travaillons ensemble.

Nous avions compris qu’il était impérieux, surtout à la lumière de la récession massive qu’on a subie en 2008, qu’on commence à travailler avec nos partenaires que ce soit l’Europe, les États-Unis, et bien entendu à l’intérieur de la fédération canadienne avec les provinces et territoires.

Hier, quelle fut notre surprise d’entendre le leader du gouvernement à la Chambre se moquer de l’idée de rencontrer et de discuter d’économie avec les provinces et territoires.

Le lendemain de l’élection générale du 14 octobre 2008, j’ai pris la liste des actions mentionnées et je les ai soulignées en jaune. Je me permets de dire que j’offre au leader du gouvernement à la Chambre cet important objet pour qu’il puisse souligner lui-même en jaune les parties appropriées de notre plateforme la prochaine fois qu’il désirera la lire.

What did the Conservative Prime Minister have to say following that general election? He had a six step program. Four of those steps were to hold meetings. Let us read them together.

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The Commons: The Harper government fully embraces satire

By Aaron Wherry - Wednesday, September 19, 2012 at 5:19 PM - 0 Comments

The Scene. The Prime Minister wasn’t present for Question Period this afternoon. He had a photo op to attend to. As a result, it was Peter Van Loan’s responsibility to stand and lead the Conservative response this day. History will make notice of this only because it was under Mr. Van Loan’s leadership today that the Harper government fully embraced a satirical approach to political discourse.

After two Conservative MPs had been sent up to mouth this month’s talking point—Rick Dykstra deserves special mention for managing to accuse the NDP leader of both not backing down on cap-and-trade and not sufficiently defending it in the House—Thomas Mulcair stood and ventured his own version of events.

“Mr. Speaker, yesterday I asked the Prime Minister what his government is doing to help the unemployed. The Prime Minister’s answer was bring in more temporary foreign workers,” Mr. Mulcair reported.

This seems a creative recounting of Mr. Mulcair’s fourth question and Mr. Harper’s fifth response on Tuesday.

“Can the Prime Minister tell us,” the NDP leader asked this afternoon, “exactly how bringing in more temporary foreign workers will help unemployed Canadians find jobs?”

In response, Mr. Van Loan deferred to an impressive-sounding number (“770,000 net new jobs”) and scary-sounding monsters (“ job-killing carbon taxes”). Mr. Mulcair had some numbers of his own. ”Mr. Speaker, there are still over 300,000 more people unemployed today than before the 2008 recession. That is the fact,” Mr. Mulcair asserted. “Wrong! Wrong!” cried various Conservative voices.

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That this House insists

By Aaron Wherry - Wednesday, September 19, 2012 at 3:45 PM - 0 Comments

The text of the motion that the NDP will put before the House tomorrow.

“That this House acknowledge that the Canadian economy is facing unprecedented risk and uncertainty; recognize that many regions and industries across Canada have already suffered significant job losses in recent years; urge all levels of government to work together to build a balanced, 21st century Canadian economy; and insist that Canada’s Prime Minister meet with his counterparts in Halifax this November at the National Economic Summit being held by the Council of the Federation.”

The Prime Minister has already turned down an invitation to meet with the Premiers in November.

The Commons: ‘Canadians deserve better’

By Aaron Wherry - Tuesday, September 18, 2012 at 5:33 PM - 0 Comments

The Scene. Conservative MP Robert Goguen, the duly elected member for Moncton-Riverview-Dieppe, stood just before Question Period and neatly enunciated the absurdity.

“Over government campaigned against the NDP plan for a carbon tax in 2011,” he declared, “and we campaigned against the carbon tax from the Liberals in 2008.”

Precisely. In 2008, the Conservatives proudly condemned a carbon tax while proposing cap-and-trade. In 2011, the Conservatives proudly condemned cap-and-trade as the equivalent of a carbon tax. (And even so, now, in 2012, the Conservatives can’t promise they won’t pursue cap-and-trade if the United States decides to do so.)

It is an elaborate joke. And the Conservatives are very committed to the bit (and unabashedly so). And so Thomas Mulcair is now stuck between laughing at, admonishing and ignoring the gag.

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Things look good around here — for now

By Paul Wells - Monday, September 17, 2012 at 11:31 PM - 0 Comments

A word cloud from the 2011 federal budget: economic, action, plan.

So it turns out Ipsos has been polling monthly, since 2007,  in 24 countries around the world, about attitudes toward the local economy. The latest round landed in my emailbox tonight, and it’s very interesting reading. It helps explain why incumbent governments have been doing well in Canadian elections, and why economic insecurity is still a big ingredient in our politics. Let’s take a look.

A hefty .pdf of the annoyingly named “Global @dvisor” poll’s latest results is here. Let me highlight a few results.

Respondents were asked how they think their country’s economy is doing; how the “local” economy is doing in their area; and whether they expect things to get better or worse during the next six months. Canadian respondents were near the top in their perception of their country’s economy: 65 per cent think the situation in Canada is “very good” or “somewhat good” (“somewhat bad” and “very bad” were the other options), the fifth-highest result out of the 24 countries surveyed. Saudi Arabia (84 per cent), Sweden (81 per cent), Germany (69 per cent) and India (68 per cent) were ahead.  Continue…

Balancing the economy

By Aaron Wherry - Friday, September 14, 2012 at 12:28 PM - 0 Comments

Thomas Mulcair talks to the Toronto Star.

“We’re always going to have a resource-based economy. We always have had and always will have . . . We also had a very strong secondary sector. We built up manufacturing. Those were choices that were made,” Mulcair said in an interview Thursday. “We’re killing off that balanced economy and it’s really having devastating effects in regions like southwestern Ontario,” he said…

And he pinned the blame on a Conservative government he says hasn’t done enough to preserve manufacturing jobs. “Because of their belief that governments have no role in maintaining a balanced economy, they have completely ignored what is happening,” Mulcair said. “They can put out all the arguments they want but there’s a reality out there that since they came to power, we’ve lost several hundred thousand good-paying manufacturing jobs,” he said.

Harper focuses on growing economy not balancing budget

By Scaachi Koul - Friday, September 14, 2012 at 10:19 AM - 0 Comments

Prime Minister Harper says that his first objective is making sure the Canadian economy keeps growing, not balancing the budget.

In an interview with Sun News Network, Harper said he was surprised by how long it’s taken world economies to recover after the 2008-2009 financial collapse.

“I thought that while the recovery would be slow, I did not expect the level of uncertainty that we still see,” he said. Harper said he wants to continue towards a “gradual reduction” in the deficit.

Harper also said that Canada will look for new trade opportunities in order for the country to be less dependent on the U.S., and said there are 50 agreements in the works with countries such as China, Japan, and India.

Stephen Harper on Libya, Iran, the Arab Spring, the economy and the budget

By Aaron Wherry - Friday, September 14, 2012 at 8:00 AM - 0 Comments

The Prime Minister talks to a certain news channel.

Ontario deficit down to $13 billion

By Scaachi Koul - Thursday, September 13, 2012 at 2:06 PM - 0 Comments

Ontario’s deficit has shrunk even more, now down to $13 billion. The first projections of $16.3 billion were proved to be too pessimistic about the province’s financial status. In March, the projection dropped to $15.3 billion, and then to $14.8 billion in April.

This revised deficit takes into account the $190 million the Liberals paid to a gas-fired power plant. It was done to save four seats in the GTA during the election last fall. The treasurer said the deficit is still not slated to be eliminated until 2017 to 2018. Still, the province is two years ahead of schedule.

Revenues for last year were $109.8 billion. It was $500 million above what was expected since Chrysler Canada repaid its 2009 auto bailout loan.

The road to Ottawa goes through Southwestern Ontario

By Aaron Wherry - Thursday, September 13, 2012 at 8:00 AM - 0 Comments

Ahead of the fall sitting, the NDP leader goes to Windsor.

“It was important to come here because this area feels the effects of the policies of the Harper government,” said Mulcair. “The manufacturing sector has been hit particularly hard here … Yet the government puts all its eggs in the resources basket while manufacturing loses hundreds of thousands of jobs.”

And London.

“We’re losing the balanced economy that Canada had built up since the Second World War. It’s been destabilized by the choices of the Conservatives.” Long-term, good-paying manufacturing jobs with pensions are being replaced by part-time jobs in the service sector that don’t come with a pension, Mulcair said.

Canada has put “all its economic eggs in the resource basket,” he said, and must include the environmental costs of developments such as the oilsands if it wants to compete internationally. “That’s had an effect of artificially raising the value of the Canadian dollar, which has made it increasingly difficult for manufacturing companies in this area to export. That’s one of the leading causes of the hollowing out of the manufacturing sector,” Mulcair told reporters. “We’re not against the development of the oilsands, that would be foolish. We are saying that we’re against the development that’s going on now because it’s not sustainable.”

And Brantford.

“The manufacturing sector has been particularly hard hit for the past five years” in Ontario, Mulcair said while touring Pro-Fab Plastics Ltd. on Bruce Street.

And Kitchener.

Mulcair tells 570 News it was quite impressive, “it’s very promising and a great way to create jobs for the future, and they’re the best kind of jobs, high tech jobs” ”I think that its a model to be followed across Canada and the region needs to be congratulated for being such a leader in this area.” Mulcair says jobs in Canada tend to be created by small and medium size businesses, and that they are the key to helping the Canadian economy rebound not giving tax breaks to big corporations, like banks and gas companies.

Carney questions the diagnosis

By Aaron Wherry - Friday, September 7, 2012 at 2:17 PM - 0 Comments

Mark Carney takes on the Dutch Disease debate.

Some regard Canada’s wealth of natural resources as a blessing. Others see it as a curse. The latter look at the global commodity boom and make the grim diagnosis for Canada of “Dutch Disease.” They dismiss the enormous benefits, including higher incomes and greater economic security, our bountiful natural resources can provide. Their argument goes as follows: record-high commodity prices have led to an appreciation of Canada’s exchange rate, which, in turn, is crowding out trade-sensitive sectors, particularly manufacturing. The disease is the notion that an ephemeral boom in one sector causes permanent losses in others, in a dynamic that is net harmful for the Canadian economy.

While the tidiness of the argument is appealing and making commodities the scapegoat is tempting, the diagnosis is overly simplistic and, in the end, wrong. Canada’s economy is much more diverse and much better integrated than the Dutch Disease caricature. Numerous factors influence our currency and, most fundamentally, higher commodity prices are unambiguously good for Canada. That is not to trivialise the difficult structural adjustments that higher commodity prices can bring. Nor is it to suggest a purely laissez-faire response. Policy can help to minimise adjustment costs and maximise the benefits that arise from commodity booms, but like any treatment, it is more likely to be successful if the original diagnosis is correct.

Stephen Gordon’s mission statement

By Stephen Gordon - Tuesday, September 4, 2012 at 10:50 AM - 0 Comments

Maclean’s is the home of some of the sharpest, best-written contributions to the Canadian conversation; I’m glad of the chance to join and chime in.

If you are a regular reader of Macleans.ca, you may have already come across my name. But if not, then here is what you need to know about me: I am an economics professor at l’Université Laval in Quebec City, and I’ve been blogging about economics for almost seven years now, at Worthwhile Canadian Initiative (the blog that I started and has since grown to be a collaboration with other economics professors) and at the Globe and Mail’s Economy Lab.

This is what I wrote in my first blog post:

Canadian academic economists have a low public profile. Offhand, it’s pretty easy to come up with at least three reasons for that:

1. We’re Canadian.
2. We’re academics.
3. We’re economists.

That pretty much adds up to the trifecta in the category of “people whose opinions are not eagerly sought out.”

But I think there’s more to it than that. There are lots of people whose opinion isn’t in any particularly great demand, but who seek the spotlight anyway in order to promote their policy agenda. What’s special about us is that we don’t seem to need to do that. The Canadian economics community is pretty small, so academic and public-sector economists know each other fairly well. Government economists are people we’ve met at conferences, people we’ve gone to graduate school with, or (more and more frequently for me) people we’ve had as students. We don’t need to mount a public relations campaign in order to get a sympathetic hearing at the Department of Finance or the Bank of Canada.

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Good news, bad news: June 28 – July 5, 2012

By macleans.ca - Monday, July 9, 2012 at 1:10 PM - 0 Comments

Good news

Mikhail Metzel/Pool/Reuters

Taking care of ourselves

Add another star to Canada’s exceptional economic performance during the Great Recession: poverty figures have actually improved. According to recent income data released by Statistics Canada, the percentage of Canadians living in poverty continues to fall—despite a global financial crisis—hitting an all-time low of nine per cent in 2010. That’s down from 12.5 per cent a decade ago. Single mothers, typically the most prone to poverty, actually reported a slight increase in after-tax income in 2010 compared to the previous year, thanks to generous government transfers and higher employment earnings.

Moving right along

The U.S. Supreme Court’s approval of so-called “Obamacare” is a crucial step forward in America’s ceaseless battle over health care. Lack of basic medical coverage for 30 million Americans has fed into the country’s overall sense of economic insecurity and, flawed though this plan may be, it is time for the U.S. to join the rest of the developed world in ensuring basic health care for all of its citizens. If Mitt Romney, the presumptive Republican nominee, chooses to make it a ballot question in this fall’s presidential campaign, so much the better: elections are precisely the venue for issues of this magnitude.

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A few words from the Prime Minister

By Aaron Wherry - Thursday, July 5, 2012 at 4:27 PM - 0 Comments

Courtesy of the Prime Minister’s Office, a transcript of Mr. Harper’s aforementioned chat with QR77 in Calgary.

DAVE RUTHERFORD: I’m Dave Rutherford. Welcome to this portion of the program. My guest in the studio, Prime Minister Stephen Harper. Prime Minister, very good to see you. Thank you for joining us today.

STEPHEN HARPER: Well, thanks for having me again.

DAVE RUTHERFORD: It’s always great to see you. We enjoy seeing you out here in the west whenever we can.

STEPHEN HARPER: It’s great to be back at Stampede time. Looking forward to it.

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Good news, bad news

By macleans.ca - Wednesday, June 27, 2012 at 5:46 AM - 0 Comments

Good news, bad news on the economic front. Consider the evidence:

The good

• Some relief for Americans in the midst of an ugly job market: the cost of living index fell in May by 0.3 per cent, the most since 2008. The biggest break came from fuel prices.
• In what will surely be a boon for North American productivity, pizza vending machines, which have been a success in Europe, are coming to the U.S.
• Canada and the U.S. announced plans to build a new $1-billion bridge between Windsor, Ont., and Detroit. Bad news for the private owner of the existing Ambassador bridge; good news for everyone else.
• The world sees Canada as a safe haven. Foreign investors bought $10.2 billion worth of Canadian securities in April (mostly government bonds)—a rebound from March’s $2.4 billion in net sales.
• Europe may be troubled but its luxury car makers are doing brisk business. BMW and Volkswagen’s Audi had record sales in May.
• A Royal Bank forecast says the Canadian economy will grow 2.6 per cent this year and in 2013. Alberta will lead the way with an impressive four per cent growth rate.
• Bombardier landed a deal worth nearly $10 billion to sell 275 of its Challenger jets to the private aircraft firm NetJets, a unit of Warren Buffett’s Berkshire Hathaway. Up, up and away.

The bad

• Raising a child isn’t getting any easier. A middle-income family will now spend $235,000 to raise a child to the age of 18, says a U.S. report. That’s up 3.5 per cent over a year earlier, mainly due to rising costs of child care, education and food.
• The number of Canadian businesses planning to hire workers in the coming months fell to its lowest level in two years, according to a Manpower Inc. survey. Time to polish up that LinkedIn profile.
• Manufacturing declined 0.4 per cent in the U.S. in May. Canada also experienced a factory slowdown, with a 0.8 per cent drop in sales in April.
• Nokia announced it will cut 10,000 jobs, almost one-fifth of its workforce. Meanwhile, rival RIM is ending its manufacturing contract with fellow Canadian firm Celestica as it continues to cut costs.
• House prices could drop 15 per cent in Toronto and Vancouver over the next few years, says a TD report. Of particular concern: the glut of new condominiums that have been built in both cities.
• Is America’s decline really this bad? The majority of people in Germany, Britain, France and Spain rank China as the world’s top economic power, says a recent Pew Research Center poll.
• America’s recession was even worse than many thought. Statistics show the median net worth of families fell 40 per cent between 2007 and 2010, to $77,300 from $126,400.

‘The Canadian approach is what the world needs’

By Aaron Wherry - Monday, June 11, 2012 at 9:57 PM - 0 Comments

The Prime Minister’s remarks in Montreal today.

“Greetings, everyone. As the Prime Minister of Canada, it’s always a great pleasure to welcome our friends to Montreal, a city renowned worldwide for its creativity and its dynamism. First of all, I’d like to thank Mr Desmarais for his kind introduction. I would also like to congratulate the organizers of the Conference of Montreal. They have done a truly remarkable job once again this year, and I would ask you to give a warm round of applause for a man with a great vision, the Founding Chairman of the Conference, Mr Gil Rémillard. I also want to note the presence of a number of Canadian companies that help to make this conference such a great success year after year.

“As it does every year, this Conférence is addressing a number of very hot topics related to the international economic situation. And the theme that most grabs our attention, once again this year, is obviously the instability of the global economy. The global economic crisis, whose effects we are still feeling, has revealed the most fundamental flaws of the Western economies. In that context, Canada remains in a very advantageous position.

“Nevertheless, Canada is very much a part of the global economy, and therefore, we are sometimes at the mercy of its challenges, particularly these days with the crisis in the Eurozone. I am genuinely encouraged by the agreement that was concluded this past weekend among members of the Eurozone to stabilize the Spanish banking situation. These are the kinds of measures that Europeans themselves are able to undertake, and that they must undertake, to move their economy forward. This is the type of self-help that Canada favours.

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Stephen Harper, Thomas Mulcair and Europe

By Aaron Wherry - Friday, June 8, 2012 at 2:41 PM - 0 Comments

Before QP yesterday, the Conservatives used four members’ statements—from Shelly Glover, Randy Hoback, Bernard Trottier and Pierre Poilievre—to lament that Thomas Mulcair would prefer to bail out the “sumptuous European welfare state countries and the wealthy bankers that lend to them”—a “reckless” plan that would apparently “kill jobs and put a huge burden on the economy here at home.” Finance Minister Jim Flaherty then criticized Mr. Mulcair during QP, in response to questions from the NDP leader, and after QP, in a scrum with reporters. Today, another members’ statement—Mr. Poilievre, again—was dedicated to bemoaning it all.

All of this seems to have been inspired by the leader of the opposition’s questions in the House on Wednesday. Mr. Mulcair noted that the Prime Minister had, in an interview with the CBC, expressed concern about the global impacts of the European economic situation, but that, in April, Mr. Flaherty had refused to go along with other G20 countries in contributing to an IMF initiative to backstop Europe. The following is the closest Mr. Mulcair comes to endorsing a Canadian contribution to the IMF’s fund.

Mr. Speaker, the Prime Minister pretends to be concerned now, but two months ago in Washington the Conservatives were singing a different tune. At the G20 meeting in April the Minister of Finance led the effort to block an international plan to resolve the European economic crisis. He told European countries “to step up to the plate” and fix the problem on their own, as if our fate were not intimately connected to theirs, and he gets applause for that from the peanut gallery. When will the Conservatives stop lecturing European countries and put forward a real plan to protect and create jobs here in Canada?

Of the developed economies, only Canada and the United States are declining to participate. Mr. Flaherty’s concerns are, at least partially, related to the IMF’s governance structure. Germany has publicly registered its concerns with Canada’s reluctance.

As eurozone considers umpteenth stop-gap measure, Fed readies for potential euro fail

By Andrew Sniderman - Thursday, June 7, 2012 at 12:55 PM - 0 Comments

European officials are considering another stop-gap measure to contain the continent’s fiscal crisis. On the table is a bailout package for Spanish banks that would be smaller in scale that those used to rescue Greece, Portugal and Ireland and also come “very limited conditionality” on Madrid’s handling of the country’s economy and financial affairs, the Financial Times reports. Spain’s budget minister estimates that $64 billion are required to recapitalize its banks, a sum he calls “not astronomical.” Others, however, have said it might take more than twice that much to restore stability to the Spanish financial system.

A limited bailout would stop short of the the kind of bold measures, such as forming a banking union or establishing eurobonds, that some say are  needed to defuse Europe’s crisis.

As things unravel in the Old Continent, Federal Reserve Chairman Ben Bernanke told the Wall Street Journal on Thursday all options are on the table ahead of a planned Fed meeting on June 19-20. He said the Fed is “prepared to take action” to “insure against adverse shocks.” Noting the troubles across the pond, he added: “the situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely.”

Meanwhile, China cut its interest rate this morning, for the first time since 2008, in an effort to avert a slowdown of its own economy.

Reports Bloomberg:

“This will be the beginning of a rate cut cycle and there will be at least one more reduction this year,” said Shen Jianguang, a Hong Kong-based economist with Mizuho Securities Asia Ltd. who has worked for the European Central Bank. “The data to be released over the weekend must be very weak and inflation must have eased sharply.”

‘It’s not just a mantra’

By Aaron Wherry - Wednesday, June 6, 2012 at 8:05 AM - 0 Comments

Stephen Harper sat down with Peter Mansbridge and the CBC has the video and transcript. The Globe, Canadian Press and Postmedia review the highlights.

How I would phrase it is that fiscal discipline and growth are not only both necessary, they are both essential. If you take those two phrases and say by fiscal discipline you mean cutting, and by growth you mean spending, then yes they are incompatible. But I don’t think it’s that simple of equation. I do think that all economies need a sense of fiscal discipline especially over the midterm and if you are in the middle of a debt crisis you can’t borrow your way out of a debt crisis. That’s logically impossible. But at the same time you do need, as we are doing in Canada, you need to undertake a range of measures, not just fiscal discipline, to ensure growth. We have an ambitious trade agenda, we are revamping our science and technology policies to get better results, as you know we’re doing labor market reforms, were doing regulatory reforms. These are all things that need to be done to increase the growth capacity of our economy. Where I occasionally get troubled is when I hear some leaders who are in the midst of, let’s face it – very,  very difficult fiscal and public opinion situations, things that are nowhere close to the kind of situation we experience, when I hear some leaders talking that way, and they say growth, it sounds like they are looking for some easy way to deal with the problem when in fact the changes you have to make in terms of growth policies are often politically very challenging as well.

PM says Canada has ‘contingency plans’ in case of fallout

By macleans.ca - Wednesday, June 6, 2012 at 7:35 AM - 0 Comments

In case of recession, Canada has “contingency plans,” Stephen Harper said last night during an interview on CBC’s The National.

During the interview in London, the Prime Minister also confessed that he is concerned about the unfolding crisis in the eurozone. “Ever since mid-’08, I have been constantly worried.”

Harper said the world should not be waiting on Greece to determine the outcome of the global economy. “I don’t want to sound too alarmist, but we are kind of running out of runway here … I am told already by my counterparts around the world that it has already been affecting most other economies.”

Earlier this week, Finance Minister Jim Flaherty said Canada’s fundamentals are sound. “If we needed to take steps in response to a shock from outside Canada . . . we are in a position to do so because we have fiscal room to move,” he told reporters.

In London for Diamond Jubilee celebrations, Harper is due at Buckingham Palace today for an audience with the Queen.

Bank of Canada holds rates, still sounds more optimistic than most

By Erica Alini - Tuesday, June 5, 2012 at 10:13 AM - 0 Comments

Unsurprisingly, Bank of Canada governor Mark Carney held the key interest rate at one per cent on Tuesday, citing concerns about the weakening global economy. In its statement accompanying the interest rate announcement, the BOC noted:

“Some of the risks around the European crisis are materializing and risks remain skewed to the downside. This is leading to a sharp deterioration in global financial conditions. While the U.S. economy continues to expand at a modest pace, economic activity in emerging-market economies is slowing a bit faster and a bit more broadly than had been expected. More modest global momentum and heightened financial risk aversion have reduced commodity prices.”

The Bank, however, did not appear ready to revise its outlook for the Canadian economy–which projects growth of 2.4 per cent of GDP for 2012 and 2013–saying that “underlying economic momentum appears largely consistent with expectations” and adding that “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”

As CIBC’s Avery Shenfeld wrote in a note to clients, the statement was “not nearly as dovish as the market has been thinking.” The loonie appreciated against the U.S. dollar as a result.

In its April 17 statement the BOC seemed to be preparing investors for a coming interest rate hike, citing a healthier economy and rising inflation as reasons to withdraw some of the current monetary stimulus.

You can read a brief overview of how the outlook for the global economy has changed for worse between April and now on Econowatch.

Dambisa Moyo on resource scarcity, and China’s race for deals

By Brian Bethune - Monday, June 4, 2012 at 1:41 PM - 0 Comments

Photographs by Andrew Tolson

Zambian-born, Oxford- and Harvard-trained economist Dambisa Moyo, 43, first rose to prominence with her bestselling 2009 polemic Dead Aid. In it she argued that development aid from rich countries to poor African nations has left the continent mired in dependency, corruption, market distortion and deeper poverty. In her new book, Winner Take All: China’s Race for Resources and What It Means for the World, Moyo rings a new alarm. Only China, she believes, has realized the pressure that rising world prosperity is placing on increasingly scarce commodities, and has begun to act accordingly.

Q: You are a free-market economist, but here you are expressing a limits-to-growth view.

A: Three billion new people will join the middle class by 2030. This is a positive trend toward a wealthier and more inclusive global order, and it will not be possible without healthy levels of economic growth. My concern is the limits to the kind of economic growth now under way. There is increasing demand for land, water, energy and minerals that far exceeds the diminishing supply.

Q: The situation you describe seems Malthusian: peak oil—and peak land, peak water, peak minerals—writ large. Wouldn’t free-market determinists respond that either the market or technological change will see us through?

A: The role of the market and technology will be necessary but not sufficient. At some point, one could surmise, the price of gasoline will be high enough that people will no longer want or be able to purchase it—that’s what economists call demand destruction. There is a big role for this in the West, and market signals in the form of high prices can push us to invest more in things like efficiency and new forms of energy. The problem is we have not seen demand destruction work in the developing world. There, consumption fulfills basic needs and people are not able to forgo it regardless of price increases.

Q: As for China’s specific role, you seem not so much politically worried as economically, even environmentally, concerned. It’s not that China’s actions are necessarily wrong, but that the West should be aware of the implications.

A: There’s nothing wrong about China going around the world making resource deals to support its growing population. What it’s doing makes a lot of sense. Yes, my concern is that other countries will not catch on until it is too late. In a zero-sum world, what will happen if China wins the race for resources? Other countries seem to be asleep while China is making a concerted effort. Some 24 ongoing wars and violent conflicts have their origins in commodities, and this trend is poised to continue. China is befriending what I call “the Axis of the Unloved”—countries and regions such as Africa, Brazil, Colombia, Argentina and parts of Eastern Europe that have been basically ignored by the Western economies. China is the leading trading partner and foreign investor in many of these countries—a very different approach to the West’s largely aid-based model.

Q: The Chinese economic edge in this is that its state capitalism offers advantages that the Western laissez-faire model does not.

A: Favoured Chinese companies have a zero or near-zero cost of capital. State-owned banks provide highly concessional credit lines, in the form of government grants or low-interest loans. Favoured companies also benefit from tax breaks and the preferential allocation of key contracts. Like the US$12-billion credit line extended to Wuhan Iron and Steel, a major steel producer, by the state-owned China Development Bank, for financing “overseas resource base construction.” And of course it helps to have a war chest of over US$3 trillion, while Western economies are struggling with cash constraints.

Q: The Chinese political edge is that it’s famously untroubled by governance issues in the countries it deals with.

A: Well frankly, in practice there is little to distinguish between the commodity counterparts of Western nations and those of China. U.S. and European countries are just as happy as China to strike deals with countries with less than pristine reputations—whether it’s Saudi Arabia, Venezuela or Russia. Two wrongs don’t make a right, but in this narrow sense, it’s unfair to constantly point fingers at China.

Q: So you think that criticism of China on both scores—cheating, so to speak, economically and being too comfortable with dictators politically—is often unfair and wrong?

A: Cheating is one thing, meddling in the markets is a whole other thing. Virtually all governments meddle in the commodities markets. Western governments are particularly egregious in this respect. The United States paid US$6 billion in commodity subsidies in 2010. OECD countries spend a total of US$226 billion on agricultural subsidies yearly. And in the EU, the Common Agricultural Policy sees some 40 billion euros spent on direct farm subsidies. So if meddling in the market is “cheating,” China has a lot of company. And the West has never had much of a problem dealing with despots and dictators if there is a benefit to be gained.

Q: For Third World nations, dealing with China rather than the West is often more attractive, you point out, not just for governments, but for the broad public. Why?

A: I think the reasons are quite clear. China pursues strictly business, symbiotic relationships, trading access to commodities for infrastructure, employment and other economic benefits. Take employment. The construction of the Imboulou Dam in [the Republic of the] Congo in 2010 employed 2,000 locals (compared to 400 Chinese). Survey results indicate that Africans much prefer to deal with the Chinese than with Westerners. In Ivory Coast, Mali, and Kenya, more than 90 per cent of respondents see China’s economic growth as “a good thing.” In Tanzania, 78 per cent agree, but only 36 per cent feel the same way about American influence. The difference is stark. Across the developing world, people want jobs, infrastructure and investment and the Chinese engagement does exactly that. Contrary to the assertions you commonly find in the Western media, I have seen no evidence that the Chinese are exploiting the countries they make deals with. In this sense these are old wives’ tales. To my mind, China’s strategy depends on mutually beneficial relationships—at least it has thus far.

Q: The West is being replaced by China both for aid and as a business partner?

A: Without question. As a result of the 2008 financial crisis and the debt crisis that continues to plague Europe, countries are slashing their budgets for bilateral aid—they have to, there is no choice. For the U.S., it makes little economic sense to borrow money from China and then give it to poor countries in the form of aid! Chinese investment in Africa increased 50 per cent over the past decade, with flows topping half a billion per year. Relatively small, but, all the same, growing.

Q: Is there another commodity that will soon join oil atop the political-economic heap?

A: Oil is the commodity that dominates the political conversation. The U.S. Energy Information Administration projects the average price will reach US$135 per barrel by 2035. But we are going to start hearing more and more about other commodity shortages. Water is one major one. American intelligence agencies have raised the alarm over increasing risks of water-based conflicts around the world. Some industrial commodities, including copper, have mounting supply and demand imbalances. Consider the top three sectors using copper: electrical and electronic (42 per cent), construction (28 per cent), and transportation (12 per cent). The three billion new middle-class people by 2030 will want computers, TVs, washing machines, cellphones and dishwashers.They will live in new buildings and buy new cars. All of that means a heavy demand for copper, a mineral that is costly to extract and in increasingly short supply. Since 2003, copper inventories have declined 32 per cent and the price has increased by almost 400 per cent. And mining businesses will have to go much farther afield to more risky countries and terrains in order to source it. This is a preview of the mounting imbalance between supply and demand.

Q: The commodities you discuss, from land to water to oil, are key to Canada’s future. What effect will the Chinese resource rush have here?

A: To a large extent that depends on the Canadian government. In 2010, Canadian authorities blocked the foreign purchase of Potash Corporation, thus effectively signalling the sensitivities around Canadian resource space. Although the Chinese have successfully executed commodity deals in Canada, one would expect the Chinese buying spree seen elsewhere won’t necessarily be plain sailing in Canada.

Q: During Stephen Harper’s recent visit to China, a Maclean’s reporter noted one instance of bilateral trade—pork from Canada for laptops from China. Is that not a historic reversal of First World-Third World trade? Does it point to a manufacturing-less North America?

A: Well, markets are dynamic. What might be cost-effective to produce in China today could be cheaper to produce in North America in the next decade—if energy costs such as natural gas hover at low levels. That aside, I would expect that China’s position as a key trade and investment partner will rise in Canadian ranks. More specifically, Canada would be very rational to foment greater ties with China as a trading partner after the recent U.S. decision on the Keystone pipeline.

Chart: The Diamond Jubilee and the British economy

By Erica Alini - Sunday, June 3, 2012 at 12:24 PM - 0 Comments

Graphic art: easel.ly Photography: Reuters/CP Images. Sources: Department for Culture Media and Sport, Impact Assessment; Time magazine; London.gov.uk; Centre for Retail Research; Visit Britain.

Whether this weekend’s Diamond Jubilee celebrations will be a much-needed stimulus or an unnecessary drag on the ailing U.K. economy has been the object of heated debate in the British media. Of course, such calculations are always an educated guess at best. This is primarily because the most important number–the value of output lost by adding a national holiday devoted to royal celebrations–is based on a what-if estimate of how much the economy would have grown in the absence of the “Jubilee effect.” For the Diamond Jubilee, the British government has estimated that number at nearly $2 billion. (The direct cost the Jubilee–borne in part by individual donors and corporate sponsorships–is in the millions, a negligible sum in terms of the country’s GDP.)

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