July 2010 Canadian Economic Fundamentals

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IMF sees global pullback in 2011

ositive signs in countries such as Canada, China and India should inflate global economic growth this year, but the forecast for 2011 is less sanguine.

The International Monetary Fund is now projecting world growth of about 4.5 per cent for 2010, up from its prior estimate of roughly 4 per cent. But that comes with a proviso: a new wave of financial turbulence has bolstered downside risks.

That is casting a shadow over 2011. Canada`s projected growth rate for 2010 has been ratcheted up to 3.6 per cent, from 3.1 per cent. But for 2011 it has dropped to 2.8 per cent from 3.2 per cent.


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Pretend austerity programs are not a solution A policy that doesn`t cut spending and debt levels just prolongs and exacerbates the pain of an ailing economy



Governments make it sound so hard to reduce deficits. The question of the moment is: What`s the problem? When the average family spends too much, it tightens its belt, and consumes less. When the average government spends too much, it loosens its belt and consumes more. Essentially, it extends slightly the time required to reach the next notch. Yet it asserts, and apparently believes, that this illusion of restraint constitutes an extreme and punitive austerity.

U.S. economist and journalist Paul Krugman, writing a couple of weeks ago in The New York Times, personifies the problem. He says the U.S. has now entered a period of dangerous austerity – deliberately "inflicting pain" on the country – simply by declining yet a further increase in deficit spending and by declining yet a further accumulation of long-term debt.


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Two views on the debt problem

or years, Bob Farrell ranked among Wall Street`s most influential voices. As Merrill Lynch chief market strategist from 1967 to 1992, he formulated 10 market rules that are still essential reading for new entrants to the investment industry.

Number nine on his list: "When all the experts and forecasts agree, something else is going to happen."

Coming out of the G8 and G20 meetings, there was near universal agreement on the need for developed economies to tackle deficits.

There`s been lots of attention to the impact on anyone relying on government spending – less attention has been paid to the negative implications for growth in economies and stock markets.


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HuffPost offers job advice: Move to Canada

A popular U.S. website has a unique suggestion for Americans desperately seeking work.

The advice? Move to Canada.

There`s a fluttering Maple Leaf on the homepage today of the Huffington Post, a site popular for its news and celebrity blogs.

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`Off the charts` job market

OTTAWA - Somebody forgot to tell Canada that the global economy is slowing down and, worse still, at risk of falling into the throes of a double-dip recession.

Jobs data for June were simply "off the charts," said Michael Gregory, senior economist at BMO Capital Markets, in describing the 93,200 gain in employment for the month. The result caps a record three-month performance in terms of employment levels, with 227,000 new jobs added. This gives Canada the honour of being the first Group of Seven economy to nearly recoup the job losses sustained during the recession, and Canada did so at a faster pace than the downturns of the 1980s and 1990s.

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Want to boost your net worth? Live in a mid-sized city

Which Canadian cities posted the biggest jump in household net worth last year? Toronto? Vancouver? Montreal?

Try Quebec City, Winnipeg, Halifax and Saskatoon. Each of these cities saw household net worth jump by nearly 10 per cent in 2009, according to WealthScapes 2010, a national survey of household financial statistics. Residents in these cities are doing the best job at managing their debt loads while continuing to invest, said Catherine Pearson, vice-president of Environics Analytics, the company behind WealthScapes.


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Housing sales fall sharply in June

The spring housing market ended with a gasp in June, as residential housing sales fell sharply across the country and the average resale price moved lower after months of record setting gains.

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Universities team up with private sector to solve student housing woes

Canadian universities are turning to the private sector to solve their campus housing problems.

They are looking at adopting an American trend that has seen dozens of schools partner with private equity firms to construct condominium-style buildings that fill the need for student living and also provide investors with the types of returns generally associated with apartment complexes.

The University of Toronto has quietly set a plan in motion that would see a new 30- to 40-storey residence built next to its downtown campus and funded by a private equity firm, which would make it the first university in Canada to erect a large tower offsite with private money.

Knightstone Capital Management Inc. has agreed to finance and build the residence, at an estimated cost of $120-million. The Toronto-based company plans to raise money from private investors, such as pension plans and private equity funds, to complete the tower.


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Consumers worried about strength of recovery: Survey

OTTAWA — Lingering concerns over Canada`s long-term economic performance are stifling chances of a sustained consumer-led recovery, according to a monthly national survey released Friday.

"Canadians are worried and wary when it comes to Canada`s economic future," said Michael Antecol, vice-president of TNS Canadian Facts, a marketing and research group. "Indeed, worries about the future have only intensified in the last month. . . . The question has to be: is it eventually going to sink the recovery?"

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Manufacturing lifts economic performance

OTTAWA — A key indicator of Canada`s economic performance rose more than expected in June, led by the manufacturing sector, Statistics Canada said Friday.

The composite leading index increased by one per cent during the month, following an upwardly revised increases of 1.1 per cent in April and May.

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Investment in commercial, industrial construction up in Q2

OTTAWA — Investment in non-residential building construction reached $10.1 billion in the second quarter of 2010, up 1.2 per cent from the previous quarter, Statistics Canada said Friday. It was the first quarterly increase since the recession hit in the fourth quarter of 2008, the federal agency said.

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Bank of Canada raises key interest rate to 0.75 per cent

OTTAWA — The Bank of Canada raised its benchmark policy rate Tuesday by 25 basis points to 0.75 per cent, even though it scaled back its growth outlook on the belief budget cutting among households and governments in advanced economies is expected to "temper" the pace of the global recovery.

GDP in Canada is now expected to expand 3.5 per cent this year and 2.9 per cent in 2011, the central bank said, compared to its previous outlook in April of 3.7 per cent and 3.1 per cent growth, respectively. However, business investment and trade are expected to make a larger contribution to Canadian growth, which up until now has relied heavily on a confident consumer.

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Why the West is Different

Andy Russell, a Lethbridge, Alta.-born trapper, grizzly-bear hunter, photographer, trail guide, rancher and writer, loved the mountains of southern Alberta. In a description of the morning sunrise at the foothills of the Rockies, written in 1973, he characterized the moment as "sudden-bursting life, a marriage of light and life," when "the mountains light up at first sun in deep rose, swiftly changing to gold, and all shot through with deep purple`s shadow." It was, he wrote, as if "the whole universe pauses for a long, heart-stretching moment, locked in a spell of deep wonder."

Such awe at the natural world is at the heart of the Western Canadian experience, and explains much about the West and the optimistic, open spirit that lies at its core. That`s due in part to how nature and life can combine to produce a self-understanding -- a "myth" in the best sense of that word -- about a region.

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Oil sands campaign a smear

The campaign against Alberta`s oil sands was escalated last week by a group calling itself Corporate Ethics International, which is neither international nor ethical.

If this group were ethical, they wouldn`t have stated that the oil sands sprawled across an area twice the size of England when, in fact, the area totals 1% of England`s land mass.

(By the way, their campaign is called "Rethink Alberta" and attacks the province as a travel destination. It omits that the province has conservation areas bigger than Switzerland.)

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Foreign investment in Canada sets record high

OTTAWA - Foreigners snapped up a record $23.16-billion in Canadian securities in May, nearly double the amount bought the month before, data showed yesterday, as federal government bonds drew strong investor interest because of their perceived safety.

Statistics Canada said the May investment was up from $12.36-billion in April and nearly triple the $8-billion analysts expected in a Reuters poll.

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Mark Carney hikes rates, but cuts outlook

The Bank of Canada Tuesday raised its benchmark lending rate for the second consecutive month while cutting its forecast for economic growth this year and next as austerity measures in Europe and economic fits and starts in the United States make for a slower global recovery and a "more gradual" Canadian rebound.

In the statement on their decision to lift the overnight rate by one-quarter of a percentage point to a still low 0.75 per cent, Bank of Canada Governor Mark Carney and his rate-setting panel reiterated that future moves will depend on developments around the world and, in turn, how they may affect Canada`s export-heavy economy.


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Control your debts, central bank tells Canadians

That`s the odd reality today for Canadians trying to make sense of what`s happening in the financial world. On one hand, there`s a growing sense that global economic growth is slowing. On the other, there`s the Bank of Canada`s decision to nudge its trendsetting overnight rate higher by one-quarter of a percentage point Tuesday.

The net result is a gift to people with debts. They`ll have to pay more in interest on their lines of credit, variable-rate mortgages and floating rate loans, but the increase is mild and the pace of further increases will be muted. It could be a lot worse.


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Real estate numbers are transitory, but value is forever

The only `news` that matters: the metropolitan population increases 50,000 annually

Real estate news can mean different things to different people. A headline announcing either a dramatic drop or a wild increase in real estate sales will attract a lot of attention.

But the change being recorded is cause for concern or excitement only for those who broker real estate. The news isn`t necessarily a reflection of values, and needn`t necessarily alarm or excite the owners of real estate.

For example, in April, 2009, the number of real estate transactions both declined and increased locally.

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Apache buys BP`s oil and gas assets in Western Canada, U.S., Egypt for $7 billion

HOUSTON — BP said Tuesday it had reached a deal to sell $7 billion in assets to Apache Corp as the British oil company raises money to cover costs related to the oil spill in the Gulf of Mexico.

Apache is known for buying older, undercapitalized assets from oil majors, and will buy oil and gas properties in Texas, Western Canada and Egypt, and BP will get a $5-billion cash deposit on July 30 as part of the deal (all figures in U.S. dollars unless otherwise noted).

BP shares rose one per cent in after-hours trading.

"We have achieved an excellent price for a set of properties that are worth more to others than BP," Chief Executive Tony Hayward said in a statement.

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Rate hike confirms gradual move to higher borrowing costs

OTTAWA—Confirming that consumers are likely to face step-by-step increases in borrowing costs in the months ahead, the Bank of Canada raised its trend-setting interest rate despite outspoken worries about the economic picture.

For the second time since June 1, Bank Governor Mark Carney hiked the overnight rate by 0.25 per cent, bringing it to 0.75 per cent.

In a statement accompanying Tuesday`s decision, Carney explained that the Canadian economy, while not barreling ahead as fast as expected, has recovered from the recession and no longer needs the full stimulus provided by rock-bottom interest rates.

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