Andrew Phillip Chernoff

The Outer Limits To The Inner Depths

Tag Archives: canadian economy

Loonie Weakens as Inflation Data Raise Chance for Bank Of Canada Rate Cut

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By Maciej Onoszko

September 23, 2016

  • Currency is on track for a quarterly loss, its first in 2016
  • Probability of monetary easing this year rises to 18 percent

Low rates mean firms should cut expectations -Bank of Canada

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reuters.com

Tuesday September 20, 2016

By Leah Schnurr

QUEBEC CITY, Quebec, Sept 20 (Reuters) – – Interest rates will stay lower for longer, and businesses need to adjust expectations for return on investment or Canada’s economy risks not seeing the improvement in productivity needed for growth, Bank of Canada Governor Stephen Poloz said on Tuesday.

In a speech outlining what low rates mean for businesses and governments, Poloz said it is obvious the Canadian economy is still facing strong headwinds and needs stimulative monetary policy to counteract them and move the country closer to full capacity.

“We also need to watch the full effects of the government’s fiscal stimulus unfold,” he said in a speech to economists in Quebec City that once again put the onus on government to stimulate the economy, given the already low level of official interest rates.

Poloz urged corporations to adjust the hurdle for new investment, saying it has been weaker than expected because some firms aren’t taking the low rate environment into account when deciding if an investment is worthwhile.

The governor said that while companies were uncertain about future demand prospects, they should not expect the kind of returns they could get before the financial crisis.

“My response has been to say that in the current and prospective environment, 4 percent will probably turn out to be a pretty good return,” Poloz said.

“Businesses need to make sure their expectations about investment returns reflect the current and likely future reality and reconfigure their investment plans accordingly.”

The Canadian dollar slightly pared earlier losses against its U.S. counterpart after Poloz’s remarks.

Poloz also said the aging of the population has driven a steady decline in the economy’s potential growth rate, but that companies and governments alike need to make adjustments because accommodative monetary policy is not as stimulative as it would have been before the crisis.

“Put simply, we’re dealing with lower for longer, not lower forever … we cannot just sit back and wait for these slow-moving forces to reverse,” he said.

Poloz said tax and immigration policy and business financing conditions should be aimed at nurturing firms, and argued that lowering trade barriers would help boost growth.

(Additional reporting by Andrea Hopkins and David Ljunggren in Ottawa; Editing by Paul Simao)

Source: UPDATE 1-Low rates mean firms should cut expectations -Bank of Canada | Kitco News

The Housing Bubble Is Over: Trouble Is Brewing

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By Ryan Vanzo – September 20, 2016

A rising tide lifts all boats. In Canada’s case, rising home prices have lifted the entire economy, even in the face of lower energy and metal prices.

While oil-rich havens such as Alberta and Saskatchewan have struggled mightily, other regions such as Ontario and British Columbia have picked up the slack–almost completely due to their rapidly rising real estate markets.

Compared to 2015 levels, the Vancouver area has seen average home prices increase by 25% with the median selling price topping $1 million. This year, Royal LePage expects Vancouver prices to rise a total 27% along with a 15% rise in the Toronto market.

“I believe it is the highest value put forward by a serious forecasting agency since the turn of the century,” said Royal LePage’s CEO.

Soon, however, the governments of both Toronto and Vancouver will have foreign buyer taxes aimed at cooling a red-hot housing market. The party may be over, and that could have major consequences on the rest of the Canadian economy.

New taxes are achieving their desired effect

According to the Canadian Real Estate Association, sales of existing Canadian homes fell in August, the fourth straight month of volume declines. The drop–the largest monthly decline in two years–was preceded by a tax on foreign buyers in Vancouver.

“Single family homes sales were already cooling before the new land-transfer tax on foreign home buyers in Metro Vancouver came into effect,” said the chief economist of the Canadian Real Estate Association. “The surprise announcement of the new tax caused sales to brake hard.”

House purchases in Vancouver declined by 26% in August compared with the same month a year earlier.

Toronto is likely to follow suit with its own buyer tax.

Benjamin Tal, an economist at CIBC, says that Ontario will have little choice but to enact a tax on foreign house buyers, similar to the 15% surcharge recently implemented on home purchases in Vancouver. Vancouver’s tax has shifted demand to other cities such as Toronto, further inflating the problem.

Tal believes that Toronto will inevitably have to enact a tax, likely putting an end to a multi-year housing market rise. “Policymakers have to use demand tools to deal with what is essentially a supply problem,” he said. “Ontario will have little choice but to do the same.”

No relief in 2017

Canadian Real Estate Association recently trimmed its forecast for 2017, projecting a 0.6% decline in national home sales and a 0.2% drop in prices. In June, it had forecast sales to rise 0.2% and for prices to rise 0.1%.

This reversal could be catastrophic.

According to Bank of Montreal (TSX:BMO)(NYSE:BMO), the rapidly rising real estate market will end poorly for consumers, lenders, and the economy as a whole. “Odds are that if this kind of price growth continues, it will end badly,” a bank analyst said in a research note.

It seems that the period of perpetual price growth is over.

Source: The Housing Bubble Is Over: Trouble Is Brewing | The Motley Fool Canada

Weaker Canadian Economy Translates Into Larger Deficits Over The Medium Term Than PBO Forecast in April.

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November 10, 2015

The Parliamentary Budget Officer (PBO) projects a sluggish recovery for the Canadian economy as it adjusts to lower commodity prices and rebalances—shifting away from consumer spending and housing toward exports and business investment.

Based on Budget 2015 measures only, the PBO projects annual deficits averaging $4.3 billion (0.2 per cent of GDP) over 2016-17 to 2020-21. Federal debt is projected to fall from 31 per cent of GDP in 2014-15 to 26.2 per cent by 2020-21.

2015 2016 2017 2018 2019 2020
-2016 -2017 -2018 -2019 -2020 -2021
Budgetary balance ($ billions) 1.2 -3.0 -4.7 -5.0 -4.6 -4.2
Federal debt ratio (% of GDP) 30.8 29.9 28.8 27.9 27.1 26.2

Over the past six months, the outlook for the Canadian economy has deteriorated. The economy unexpectedly contracted in the first half of 2015. The IMF again marked down its outlook for the global economy.

The PBO’s outlook for oil and other commodity prices has been revised down and we now anticipate a larger adjustment in residential investment.

The PBO has revised down nominal GDP—a broad measure of the government’s tax base—by $20 billion each year, on average, between 2015 and 2020 compared with our outlook provided to the House of Commons Standing Committee on Finance on 28 April 2015. The downward revision results from both lower real GDP levels and lower economy-wide prices.

The PBO has provided an updated fiscal forecast that does not include the measures announced in the new government’s platform. The outlook is intended as a status quo planning assumption for the beginning of the 42nd Parliament.

The PBO will provide an updated outlook including measures proposed by the new government when further details are released during the new legislative session.

Source: November 2015 Economic and Fiscal Outlook