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Stephen Poloz Right To Be Worried - Peter Diekmeyer

Bank of Canada governor Stephen Poloz cited numerous worries plaguing the economy during his speech to Toronto’s financial elites yesterday at the prestigious Canadian Club.

However, the title of Poloz’s presentation, “Three things keeping me awake at night” seemed odd, given positive recent Canadian employment, GDP and other data.

Poloz highlighted high personal debts, housing prices, cryptocurrencies and other causes for concern, along with actions that the BoC is taking to alleviate them. His implicit message was (as always) “We have things under control.”

But if that’s all true, then Canada’s central bank governor should be sleeping like a baby. So, what is really keeping Mr. Poloz up at night? Three possibilities come to mind.

The Poloz Bubble

Firstly, far from just a housing bubble, Canada’s economy shows signs of being in the midst of an “everything bubble.” Bitcoin, for example, hovered near CDN $23,000 this week. Stock and bond valuations are not far behind in their relative loftiness.

Worse for Poloz, who took office four years ago, his fingerprints are all over those bubble-like levels.

Canadian stock, bond and house prices were already at dizzying heights when Stephen Harper hired Polozwith the implicit expectation that he would juice up the economy, in preparation for what Canada’s then-Prime Minister knew would be a tough upcoming election.

Poloz didn’t disappoint, promptly delivering a nice Benjamin Strong-styled “coup de whiskey” to asset prices in the form of two interest rate cuts, which brought the BoC’s policy rate down to just 0.50% during the ensuing months.

Although Harper lost the election, loose BoC policy continues to provide the Canadian government with free money to borrow and spend as it wishes.

More broadly, the Poloz BoC’s current policy, like that of the US Federal Reserve, is to boost asset prices even higher in the hope that the resulting wealth effect will trickle down to spur economic activity among ordinary Canadians.

…click on the above link to read the rest of the article…

Bank of Canada keeps benchmark interest rate at 0.5%

April 13, 2016

Bank of Canada keeps benchmark interest rate at 0.5%

Central bank’s rate has impact on rates offered by commercial banks for loans and savings accounts

The Bank of Canada, lead by governor Stephen Poloz, kept its benchmark lending rate at 0.5 per cent on Wednesday.

The Bank of Canada, lead by governor Stephen Poloz, kept its benchmark lending rate at 0.5 per cent on Wednesday. (Adrian Wyld/Canadian Press)

The Bank of Canada’s rate, known as its target for the overnight rate, affects what Canadian borrowers and savers are offered from commercial banks on their loans and investments.

BANK OF CANADA KEY OVERNIGHT RATE Broadly speaking, the bank cuts rates when it wants to stimulate the economy, and hikes rates when it wants to pump the brakes on inflation.

After standing on the sidelines for years, the bank unexpectedly cut its benchmark rate twice last year in an attempt to stimulate a Canadian economy waylaid by low oil prices.

Since then, the economy has showed signed of improvement, however, as the cheap loonie has helped manufacturers and exporters, and oil prices have stabilized around the $40 level in recent months.

In January, Canada’s gross domestic product grew by its biggest amount in more than two years, official data showed last month. That helps explain the new cautiously optimistic outlook from the central bank’s decision-makers.

BANK OF CANADA ECONOMIC OUTLOOK “It does appear that the positive forces at work in the economy are starting to outweigh those that are negative,” the bank said in its statement Wednesday. “First-quarter GDP growth appears to have been unexpectedly strong.”

The Canadian dollar reacted positively to the news, erasing earlier losses of about a third of a cent to trade hands virtually unchanged on the day, at 78.35 cents US.

While keeping rates steady for now, the bank hiked its forecast of how it expects the economy to perform this year.

…click on the above link to read the rest of the article…

OECD cuts growth outlook for Canada’s economy this year and next

February 18, 2016

OECD cuts growth outlook for Canada’s economy this year and next

Canada, other economies ‘reliant on commodity exports’ bear brunt of global slowdown

A worker builds a jet engine at a factory in Quebec. According to the OECD, Canada's economy is going to perform worse than previously anticipated this year and next.

A worker builds a jet engine at a factory in Quebec. According to the OECD, Canada’s economy is going to perform worse than previously anticipated this year and next. (Radio-Canada)

The Organization for Economic Co-operation and Development said Thursday that after eking out a 1.2 per cent expansion in 2015, Canada’s economy is on track to grow by 1.4 per cent this year and 2.2 per cent next year.

The forecasts for this year and next are less than had been expected by the group, which conducts research on the world’s richest nations, in its last quarterly forecast.

As recently as November, the group was expecting Canada’s economy to grow by two per cent this year and 2.3 per cent next year.

The group singled out Canada and other economies described as “reliant on commodity exports” for bearing the brunt of a global economic slowdown that seems underway.

In 2015, the world’s economy grew by five per cent, it’s slowest pace in five years, the OECD said. The group expects a repeat performance in 2016.

“Trade and investment are weak,” said Catherine Mann, the organization’s chief economist. “Sluggish demand is leading to low inflation and inadequate wage and employment growth.”

The estimate for U.S. growth has been lowered by 0.5 to 2.0 per cent in 2016 and by 0.2 to 2.2 per cent in 2017. There were also downgrades for the other G7 countries — Germany, France, Italy, Japan and the United Kingdom — as well as Brazil.

…click on the above link to read the rest of the article…

IMF downgrades Canadian growth outlook to 1% for 2015

October 7, 2015

IMF downgrades Canadian growth outlook to 1% for 2015

Risks for the world include low commodities prices, China’s slowdown and rate hikes

The IMF has downgraded its outlook for Canadian growth to one per cent this year because of the impact of lower oil and commodities prices.

It also has revised its expectations for global growth downwards to 3.1 per cent, the lowest since 2009.

In a report Tuesday in advance of the IMF-World Bank annual meetings this week in Lima, Peru, it highlights the downside risks to the world economy from the economic slowdown in China and low prices for commodities.

The recovery it expected earlier in the year has become uneven, it said in its World Economic Outlook with marginal advances in developed economies and slowing in most emerging economies.

“Six years after the world economy emerged from its broadest and deepest postwar recession, the holy grail of robust and synchronized global expansion remains elusive,” said Maurice Obstfeld, IMF director of research.

Growth slower in most nations

“Despite considerable differences in country-specific outlooks, the new forecasts mark down expected near-term growth marginally but nearly across the board.”

It has revised its estimate for Canadian GDP growth downward by half a percentage point from its July forecast to one per cent this year, and to 1.7 per cent in 2016. Last year, the IMF was forecasting 2.2 per cent growth for the Canadian economy.

A side report explores how the sharp decline in commodity pricesover the last three years has hurt economies dependent on commodities, including Canada, Chile and Australia.

“The weak commodity price outlook is estimated to subtract almost one percentage point annually from the average rate of economic growth in commodity exporters over 2015–17 as compared with 2012–14,” the IMF said.

“In exporters of energy commodities, the drag is estimated to be larger: about 2¼ percentage points on average over the same period.”

…click on the above link to read the rest of the article…

Three Worrying Economic Trends Beyond Canada’s GDP Drop

September 3, 2015

Three Worrying Economic Trends Beyond Canada’s GDP Drop

New data confirms what 79 per cent of Canadians already felt.

The much anticipated quarterly GDP numbers are out, and StatsCan confirmed what 79 per cent of Canadians already felt to be the case — Canada’s economy is in decline. A drop in economic activity of 0.1 per cent in the second quarter of 2015 officially tipped Canada in recession territory (after a drop of 0.2 per cent in the first quarter).

The dip in GDP is what’s making the headlines this week, but there are three other trends in the new data released by StatsCan that suggest the economic slowdown is here to stay. Indeed, as my colleague David Macdonald noted here, “recession is just the tip of Canada’s economic iceberg.”

1. Business investment is down for the third consecutive quarter

This decline comes on the heels of a long post-recession period of weak business investment since early 2012. You may remember the former governor of the Bank of Canada, Mark Carney, famously accusing companies of sitting on piles of“dead money” in the summer of 2012. A quick look at the statistics shows little has changed since.

Business investment in non-residential structures and machinery and equipment from 2010 to 2015, via StatsCan.

The problem is that without business investment, we can expect weaker job growth and a slower economy to continue.

The Bank of Canada cut its interest rate in January 2015 in an attempt to to encourage investment and boost the economy. Unfortunately, all this seems to have done is further distort real estate markets, particularly in places like Vancouver where housing affordability is reaching record lows.

2. A number of key economic sectors are in decline, not just oil and gas

Over the last decade, Canada’s economy has become overly reliant on mining and oil exports. It’s not surprising that when the price of oil and minerals drops sharply, as it has over the last year, our resource sector would be hit hard. But the economic decline extends beyond mining, oil and gas.

…click on the above link to read the rest of the article…

Friday job numbers may tell tales GDP missed: Don Pittis

September 3, 2015

Friday job numbers may tell tales GDP missed: Don Pittis

Stats could show if slump is over and whether there is a rebound outside the oil industry

Opponents in the battle over whether the Canadian economy is collapsing or clawing its way back to recovery will get more ammunition on Friday. That’s when we learn the latest figures on job creation and unemployment.

Statistics Canada’s GDP data that we got earlier in the week is useful, but in several ways, the labour force survey is even better.

“I’d personally put more weight on labour market figures than the GDP,” says Mike Veall, professor of economics at McMaster University. Veall’s specialty is econometrics, reading economics through math and statistics.

Two months late

One of the problems with gross domestic product is that it’s not a simple figure, he says. It is more of a statistical construct estimating the total activity of the entire Canadian economy.

The owner of a Nova Scotia roofing company says he is finally getting his choice of good employees as workers return from Alberta. He says returning oil patch workers have been well trained in safety. (CBC)

One result of that lack of simplicity is a lengthy delay getting a reading of the data. Another is month-to-month inaccuracy.

The long and technical process of gathering all the components that go into creating those GDP calculations takes time. That means we don’t get a reading on each month’s economic growth until months after it happened.

Even then, new data can alter the calculations, resulting in revised figures. This week, for example, Statistics Canada told us the economy had actually shrunk by 0.8 per cent in the first three months of the year after previously telling us it had shrunk only 0.6 per cent.

“The main advantage of jobs numbers is their currency,” says Veall. “They’re more up to date.”

…click on the above link to read the rest of the article…

Canada’s economy: 5 reasons not to panic

August 28, 2015

Canada’s economy: 5 reasons not to panic

Cheap gas, solid hiring and a strong housing market help Canadians weather the financial storm

A recent spate of frightening economic headlines paints a dire picture of the economy, but an examination of some basic gauges of Canadians’ financial health demonstrates it’s not all doom and gloom.

News of plummeting oil prices, the struggling stock market and a loonie that recently dipped below the 75-cent US level for the first time in more than a decade have Canadians on edge and fearful for their their futures, as economists debate whether this country is in a recession.

But already, things are looking up. The North American and global stock markets surged on Thursday, oil rebounded to above $42 US a barrel and the Canadian dollar recovered to above the 75-cent line.

While the effects of the economic downtown on Canadians should not be downplayed, there are plenty of reasons not to panic — hiring remains steady, home values are up, gas prices are down, people are generally managing their debt responsibly and most Canadians have nice nest eggs of savings and investments.

1. Most people are working

Hiring has remained steady in Canada despite a shrinking economy. (CBC)

The most recent job numbers from Statistics Canada show that employment in Canada is steady and job growth is modest.

In July, the economy created 6,600 additional jobs, and the unemployment rate remained at 6.8 per cent for the sixth straight month.

“Make no mistake, this is not a strong report … but it’s also not notably weak,” BMO chief economist Douglas Porter told CBC News at the time. “While many have been quick to label this year’s economic performance a recession, the job numbers just haven’t backed that up.”

As of July, Canada had added 100,000 jobs in 2015, despite a major downturn in the oil and gas sector.

…click on the above link to read the rest of the article…

Federal election campaign’s phoney debate over deficits: Chris Hall

August 27, 2015

Federal election campaign’s phoney debate over deficits: Chris Hall

Answers on how parties plan to pay for campaign promises may not come for weeks yet

This federal election is supposed to be about the economy, an opportunity for voters to determine which party is offering the best plan to create jobs, open new markets for Canadian goods and services and to help this country withstand what is shaping up to be, at worst, another recession or, at best, another period of stagnant growth.

Leaders trade shots on who will or won’t run deficit — and whether it matters
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ANALYSIS | Chris Hall: Duffy trial testimony has Harper campaign on the defensive

But so far this week those important questions are secondary to a dispute over budget deficits — or more accurately, a debate over why one party is prepared to run a deficit in order to finance their campaign promises.

For now, it’s a phoney debate.

None of the parties have put out a fully costed plan, tallying up how much their promises will cost. Those platforms will come sometime in September when, if current forecasts hold, the Canadian economy will be technically in another recession.

The CBC Election Pollcast, hosted by CBC poll analyst and ThreeHundredEight.com founder Éric Grenier, explores the world of political polls, their influence on the media and the trends they are showing. Subscribe to Éric Grenier’s Election Pollcast podcast

It’s also not clear whether the federal books are balanced, or if the government slid back into deficit this year because of the plunge in oil prices, with the subsequent loss in federal revenues and increase in employment insurance claims — particularly in Alberta where EI claims have risen eight months in a row through June, and Saskatchewan, where claims were up nearly five per cent that month.

Enjoy Canada’s low dollar while you can: Don Pittis

August 26, 2015

Enjoy Canada’s low dollar while you can: Don Pittis

There’s not much you can do about the low loonie, so just look on the bright side

The low Canadian dollar is hurting John Stiles at Calgary-based Planet Foods. His company distributes natural foods and healthy snacks across Canada.

The cost of his U.S. imports is going up, but he can’t even raise his prices. The large well-known chains he sells to, such as Mountain Equipment Co-op and SportChek, only allow price changes every four or six months.

Dollar dips below 75 cents for first time since 2004
China’s market problems could be Canada’s chance to ‘reset’ its economy
“Like with the dollar right now, we typically can’t do a price increase till January,” says Stiles, who is in charge of operations.

Waiting it out

According to Stiles, the only real answer is to wait it out. In the roughly 15 years Planet Foods has been operating he has seen three wild swings in the Canadian dollar.

“It’s going to take six months to a year to get that back to 90 cents,” he says.

Of course there are no guarantees that the loonie will bounce back so quickly. But Stiles offers us a useful reminder. The lower the loonie gets, the more likely it will climb back out of those lows.

While a rebound in Canada’s traditional industries may take years, the impact on tourism has been immediate with Banff “thriving.” (CBC)

The classic example of why the lower loonie helps the Canadian economy is that it is an advantage for Canadian exporters. But while we’re waiting, I thought it might be a good idea to imagine some other advantages, if just to make us feel better.

Unfortunately, there are signs a promised industrial rebound may be slow in coming. New export industries don’t grow overnight. There are some estimates that, like the effect of interest rate cuts, the wait for a currency-led change in the industrial economy must be measured in years.

Not so the tourism industry, where the rebound has been almost immediate.

…click on the above link to read the rest of the article…

China’s market woes could be chance to ‘reset’ Canadian economy

August 25, 2015

China’s market woes could be chance to ‘reset’ Canadian economy

Canada should ‘rely less on commodity growth and put the emphasis on other sectors,’ analyst says

China’s staggering economic growth has been, in many ways, a boon for Canada.

Put simply, China need lots of the things we have to offer like wood, metals, and potash. It also has a voracious appetite for oil. While we still send the vast majority of our oil south, China’s consumption had in part kept oil prices high, which benefitted our resource-based economy.

Yesterday’s stock plummet in Shanghai, however, could further rattle already struggling commodities markets – ultimately hitting at Canadian producers.

The sell-off and ensuing market chaos was also an indication that doubts remain about China’s ability to maintain its projections for growth amid historic internal reforms that could considerably lower demand for many of the things Canada is offering.

“We are a commodities producer that relies on global economic growth and for the past 10 years or so that growth has come largely from China,” says Ian Nakamoto, director of research at the Toronto investment firm MacDougall, MacDougall & MacTier.

Throughout the 2000s, that growth coincided with a nationwide construction boom. The government poured money into infrastructure projects like high-speed rail, sprawling industrial parks and vast new roadways, formerly rural outposts developed into bustling urban centres.

But the focus and capital has now shifted from fuelling a commodities-dependent economy to establishing a consumer-driven one.

“It’s an impetus for Canadian policymakers and industries to rely less on commodity growth and put the emphasis on other sectors,” says Nakamoto.

Indeed, commodity prices are down across the board. The Economist magazine reported last week that the prices of all major commodities have fallen between 10 and 20 per cent this year, heralding the end of a so-called super-cycle that began in 2000.

…click on the above link to read the rest of the article…

What U.S. Fed chair Janet Yellen doesn’t know: Don Pittis

July 30, 2015

What U.S. Fed chair Janet Yellen doesn’t know: Don Pittis

Continued risks to a U.S. and Canadian economic recovery keep us guessing about interest rates

If everyone is so confident interest rates are going to go up in the autumn, why doesn’t U.S. Federal Reserve chair Janet Yellen just say they are going to go up in September? The answer is risk.

Before yesterday’s monetary policy statement from the Fed, released on paper without the benefit of an explanatory news conference, there was some speculation she would make that very announcement. But that’snot the way it turned out.

Fed points to improved job market, but leaves rates unchanged

“The Fed effectively did this in 2004” — putting the markets on notice that a move would come soon — “shortly before it last embarked on a rate-increasing cycle,” said the Financial Times in an article anticipating the central bank’s latest pronouncement.

Seeking hints

But instead, the people who read each statement to glean the smallest hints about what the Fed will do next were disappointed about how little information it contained. There was a little optimism and a little pessimism but there was one sentence that summed up the gist of the538-word release.

“The Committee continues to see the risks to the outlook for economic activity,” said the statement unanimously agreed upon by Yellen and her advisors.

As Prime Minister Stephen Harper and the industry he championed discovered, risks are events that seem to come out of nowhere. The oil price plunge, followed by a general collapse in commodities prices, in a matter of months turned Canada from one of the world’s hottest economies into one on the verge of recession.

In the case of the U.S. economy, there are similar events that could change what has been a relatively positive outlook.

…click on the above link to read the rest of the article…

Forget politics, here is what the economy needs: Don Pittis

July 27, 2015

Forget politics, here is what the economy needs: Don Pittis

Try seeking a recovery as if Canada weren’t in election mode

If Prime Minister Stephen Harper could wave a magic wand and make the Canadian economy boom, you’d think he would do it now.

It’s well-known that one of the main barriers for an existing government to get re-elected is a sagging economy. And despite Conservative Finance Minister Joe Oliver’s boasts on job creation and growth, there are plenty of signs that Canadians are hurting.

Oil and the loonie are plunging. And while Bank of Canada governor Stephen Poloz would prefer us not to use the word “recession” because it is “unhelpful,” it seems clear that Canada is in or close to that.

The fact that governments cannot snap their fingers and fix the economy is in some ways reassuring. It shows that the conspiracy theorists who think the world is being controlled by powerful cliques in smoke-filled rooms really are just wacky.

Part of the problem is that politics is complicated. Despite his government’s ability to pass practically any legislation, in so many ways, Harper’s hands are tied by external forces and those created by his own party.

That is why an imaginary government that did not have to worry about politics might do things differently.

One of the most obvious things to do when an economy is weakening is to spend. While it may be smart to run surpluses when the economy is booming, you don’t have to be a fanatical Keynesian to think it’s good to spend that surplus when the private sector economy is shrinking.

In this case, Harper is partly restricted by his own ideology. Switching from a balanced-budget, small-government focus to Keynesian largesse would seem like a flip-flop and could alienate a neo-conservative core.

…click on the above link to read the rest of the article…

Will Fixed Election Hurt Canada’s Economy? This Economist Thinks So

July 9, 2015

Will Fixed Election Hurt Canada’s Economy? This Economist Thinks So

On verge of recession, campaign might steamroll stimulus.

The first day of September will be a critical one for Canada, say economists.

That’s the day new economic data will determine whether or not Canada’s economy shrunk two quarters in a row. A second downturn will put the country in an official recession with fewer than two months until a federal election.

Canada’s gross domestic product fell one per cent in the first quarter of 2015 and signs show it could shrink another 0.6 per cent for the second quarter, with TD Bank blamingfalling oil prices.

Mowat Centre economist Mike Moffatt said economic turmoil in China isn’t helping, as Canada’s economy relies so heavily on commodity prices.

“This is not a good thing for the Canadian economy,” Moffatt said. “There’s a distinct possibility we’ll have three quarters of negative growth — something outside of the 2008 recession we haven’t seen in quite some time.”

Wednesday the Shanghai Composite closed having lost 5.9 per cent after plummeting 8.2 per cent when it first opened. China’s government-owned Securities Timesreported 700 companies asked to suspend trading of their shares in an attempt to dodge the market turmoil.

Fixed election drag?

According to Moffatt, Canada’s fixed election date of Oct. 19 will make responding to the downturn nearly impossible, as government will be dissolved during the six-week campaign period.

The Harper government passed legislation in 2007 mandating an October election every four years, but the law is not binding. Canada’s constitution still fixes a maximum term at five years.

Under Canada’s former election rules, Moffatt said he expects government would likely not hold an election and instead look to stimulate the economy. “I think this is showing one of the problems with fixed election dates,” he said. Prime Minister Stephen Harper could choose to ignore the fixed election date, but would pay a political cost.

…click on the above link to read the rest of the article…

Canadian Economy More Damaged By Oil Prices Than Expected

June 12, 2015

Canadian Economy More Damaged By Oil Prices Than Expected

Canada’s oil industry has had a rough couple of months with production and exports taking a hit.

Low oil prices are cutting into the profits of major producers. Producing from Alberta’s oil sands is costly and requires a high oil price to justify the expense.

In fact, the fall in prices could significantly impact production levels decades from now. Oil companies are shelving large investments because they no longer look profitable. For example, earlier this year Royal Dutch Shell abandoned a potential 200,000 barrel-per-day oil sands mine. Overall, Canada’s oil patch could see a $23 billion cut in investment in 2015, a decline of almost a third from last year. Unless oil prices bounce back, a lot of projects may not move forward.

Lack of investment now translates to lower oil production in the future. Canada may only produce 5.3 million barrels per day in 2030, according to the Canadian Association of Petroleum Producers (CAPP), much lower than the 6.4 million barrels per day the group predicted last year.

But again, a lot depends on what happens with oil prices. The decision by OPEC to play for market share doesn’t bode well.

“It really depends on how long OPEC decides they want to keep pricing at this level with their quotas that they’ve established,” Greg Stringham, CAPP vice-president of markets and oil sands, told the Financial Post.

The contraction underway in Canada’s oil sands has been hugely damaging to the broader Canadian economy. First quarter GDP declined by the most in over six years, falling 0.6 percent on an annualized basis. The figures stunned most economists who had expected modest growth, and it indicates that Canada’s economy is feeling the pain of low oil prices much worse than previously expected.

…click on the above link to read the rest of the article…

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Two months late

1. Most people are working

Seeking hints

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