Canadian Economy

[Skybean]

Thread for general economic news so that I don't need to make a new one for every nice article that I find.

Canada's resilient economy


The Goldilocks recovery
Strict financial regulation and a new commodity boom have turned “boring” Canada into an economic star

May 6th 2010 | OTTAWA | From The Economist print edition

THEIR economy is so intertwined with their neighbour’s that when the United States plunged into recession, Canadians assumed they would be dragged along for the ride. Newspapers took to illustrating their economic stories with pictures of Depression-era bread lines. Yet whereas the United States has still not officially declared its recession over, Canada is nine months into recovery from its mildest and shortest downturn in recent history. Unemployment has been falling since last August, and proportionately fewer jobs were lost than south of the border.

Jim Flaherty, the finance minister, attributes Canada’s strong performance to its “boring” financial system. Prodded by tight regulation, the banks were much more conservative in their lending than their American counterparts. Those that did dabble in subprime loans were able to withdraw quickly. This prudence kept a lid on house prices while those in America were soaring, but it paid off when the bust hit. The volume and value of home sales in Canada are now at record highs. In some areas the market looks downright frothy: a modest house in Ottawa listed at C$439,000 ($435,000) recently sold for $600,000. “A lot of homes are selling in one day, and often for over the asking price,” says David Cullwick, a local estate agent. Rising prices have bolstered the construction industry and sellers of furniture and building materials.

True to form, the authorities are moving to halt the party. During the recession the Bank of Canada cut its benchmark interest rate (to 0.25%), injected extra liquidity and bought up mortgage-backed securities. At its April policy meeting the bank withdrew its pledge not to raise rates. Analysts expect an increase in June. The government has ended tax credits for first-time house buyers and for renovations, which were granted in 2008 to stimulate demand.

For the other component of the country’s resilience—resurgent appetites for its exports of oil, gas, and minerals—Canadians have to thank policymakers in Beijing more than those in Ottawa. At their low point, prices for Canada’s commodity exports were still 50% higher than in previous recessions. Since then, they have rallied strongly. The impact is illustrated by the fortunes of Teck Resources, a Vancouver-based mining firm. It staggered into the recession loaded with a $9.8 billion debt taken on to buy the assets of a coal-mining company. For a while its survival was in doubt. Last month Teck not only announced that it had repaid the debt but also that it would pay a dividend.

The energy industry is coming back to life, with new investments planned for in Alberta’s oil sands. Last month Sinopec, a Chinese oil company, announced it would pay $4.65 billion for a 9% stake in Syncrude Canada, the largest operator in the sands. Such investments are controversial because of their environmental impact. But they are welcome in Alberta, where the government posted an unprecedented budget deficit last year.

“Our regional economies are so diverse that there is always something leaning against the wind,” says Philip Cross, the chief economist at the government statistics agency. But the combination of commodity revenues and investors seeking safety in Canadian assets has caused the currency to take off. After falling as low as 77 American cents during the recession, the Canadian dollar has now returned to rough parity with the greenback.

That is a tribute to the country’s success. But the central bank warns that a strong loonie, as the currency is known, will slow the recovery. It would be particularly harmful to manufacturing exporters, who were battered by the recession (car production fell by 31% in 2009). That might lead to further specialisation in natural resources. For now, concern about the loonie is muted, because most companies adapted to a stronger exchange rate during its previous run-up in 2007. Many of those that did not went bust. But if the currency continues to rise, the squeals will surely grow.

The government of Stephen Harper, the Conservative prime minister, might have expected to receive more praise for the economy’s robust performance. If it has not, that may be partly because it insisted that the recession was imported from the outside world. Much of the country’s resilience stems from policies—such as bank regulation and sound public finances—which predate Mr Harper. The Bank of Canada can share some of the credit too. But Britons might note that Mr Harper has managed to govern for four years without a parliamentary majority, and that this has not prevented Canada from sailing through the recession.

http://www.economist.com/world/ameri...ry_id=16060113

The least-bad rich-world economy
The charms of Canada
Good policies, good behaviour and good fortune: if only others could be as lucky

May 6th 2010 | From The Economist print edition

AS THEY contemplate high unemployment, foreclosed homes, shrivelled house prices and the arrogant follies of their investment bankers, Americans may cast envious glances across their northern border. Despite its umbilical links with America, Canada’s economy suffered only a mild recession and is now well into a solid recovery. The Canadian dollar, having dipped sharply, is back up to rough parity with the greenback. The Bank of Canada has signalled that it may soon raise interest rates. When Stephen Harper, the prime minister, hosts the get-togethers of the G8 and G20 countries next month he will be able to boast to his visitors that his country’s economy is set to perform better than that of any other rich country this year.



How has Canada avoided the plagues that are afflicting everyone else? The short answer is a mixture of good policies and good luck. The main reason for the country’s economic resilience is that neither its financial system nor its housing market magnified the recession. The banks remained in profit. House prices held up fairly well and are now rising. And for that regulators deserve a chunk of the credit.

Canada’s banks face high capital requirements and a cap on their leverage, such that their assets cannot exceed 20 times their capital (a lot less than the corresponding figure for many Wall Street firms and European banks). Canadians who take out mortgages worth more than 80% of the value of the property must also take out insurance against default from a federal agency, the Canada Mortgage and Housing Corporation. The banks must insure the rest of their mortgage book with the corporation. It helped, too, that Canada has a single banking regulator. The big five banks snapped up the leading stockbroking firms in the 1990s, becoming universal banks. But, whether through luck or judgment, they never became too dependent on investment banking. And, mirabile dictu, their shareholders managed to ensure that bankers’ bonuses were kept within modest bounds.

Many of these rules embody lessons learned the hard way from banking collapses in the mid-1980s. Something similar goes for the public finances. By 1995 Canada’s chronic fiscal deficits, towering public debt and stagnant economy prompted the Wall Street Journal to call it “an honorary member of the Third World”. Years of deficit cutting followed. The result was that Mr Harper’s government could easily afford the modest stimulus it applied in 2008. Government debt in Canada is still below 36% of GDP (and will soon fall), little more than half the (rising) ratio in the United States.

But there is also a large dollop of good fortune behind Canada’s resilience. If parts of eastern Canada resemble Europe in economic terms, the west looks more like Brazil. Its mines, oil and gas producers and farmers have benefited from the commodity boom brought about by China’s appetite for raw materials. This boom brings a problem: it is helping to drive up the Canadian dollar, which risks making life more difficult for manufacturers back east. And Canada’s fiscal health will soon come under strain from the treasured but expensive public health-care system and an ageing population. There is little sign that the country’s politicians are ready to deal with either.
The costs and benefits of conservative banking

How much of the Canadian model can, or should, be exported? Critics of the Canadian banks reckon that their conservatism was the flip side of a cosy oligopoly. The big five were barred from merging and partly protected from foreign interlopers. They shared out a profitable domestic market and gave up competing on price. And keeping tabs on the banks is much easier when all are relatively small by international standards and are based within a few hundred yards of each other and of regulators in Toronto.

The result is that Canadians pay more for financial services than others and there is little innovation. Even so, as taxpayers elsewhere dig deep to pay for their bankers’ wheezes they might think that Canadians got a bargain. Replicating Canadian banking elsewhere would be hard. But when Americans and Europeans press Mr Harper at the G20 meeting to accept a tax on banks to curb their riskiness, he has reason to retort that Canadian-style regulation does the job better.

http://www.economist.com/opinion/dis...ry_id=16059938

[Looking/Up]

Ontario poised to lead the pack

After taking the brunt of Canada's recession in 2009, Ontario is poised to lead the pack in an economic recovery in 2010 thanks to a rebound in the auto industry, the Conference Board of Canada said in a new outlook Monday.

The province, which has seen rapidly rising employment since the second half of 2009 amid a soaring housing market, will also benefit from increased consumer spending that will grow GDP by 3.8% in 2010, the board said.

British Columbia, which got a big boost from the Vancouver Winter Olympics in February, is also expected to have its GDP grow 3.8% this year.

"The improved domestic economies of Ontario and British Columbia, along with increased demand from the United States, will support a strong rebound in both provinces," Marie-Christine Bernard, associate director of provincial forecasting with the board, said in a release. "However, the rebound will be gradual for most other provinces, spreading over the next two years."

British Columbia will also benefit from a recovery in forestry, manufacturing and construction, but with the Olympic stimulus gone GDP growth will slide to 2.8% in 2011, the report said.

Other provinces expected to have strong 2010s include Saskatchewan (+3.5%), and Alberta (+3.3%), while Quebec will grow a modest 2.6%.

New Brunswick, hampered by drops in business investment and only modest recovery in manufacturing, will gain only 1.8% this year, the least among the provinces.

Newfoundland and Labrador, meanwhile, is expected to lead provincial growth in 2011 at 4.5% GDP growth due to a brief upswing in offshore oil production. The province will get 2.4% growth in 2010.

Read more: http://www.financialpost.com/news-se...#ixzz0nXhGJHyC

[Filip]

It is absolutely fascinating to see the changes in economic world order happening before us.

A historic moment has occurred when the CAD followed its own interests and not bouncing to the beat of the USD. Canada's economy is currently at a crossroads... If successful in fighting off the desires of Europe and the USA to tax the banking industry; Canada will be the only developed country on this planet where banks are not taxed - this will increase our competitiveness sky high and enable Canada to aggressively pursue global finance jobs and offices fleeing highly taxed jurisdictions.

Also I think Harper should make a strong point about bringing a global securities regulator to be headed by Canada. We have shown the world that our system works and for that we should be allowed to reap the rewards. Clearly this regulator should be where the banks are and that's Toronto (mostly because I'd like an easier time finding a job when I graduate, among other things).. Regardless this entire financial fiasco of the past 2 years has done nothing but good to the Toronto financial industry.

[TheMann2000]

Originally Posted by Filip

It is absolutely fascinating to see the changes in economic world order happening before us.

A historic moment has occurred when the CAD followed its own interests and not bouncing to the beat of the USD. Canada's economy is currently at a crossroads... If successful in fighting off the desires of Europe and the USA to tax the banking industry; Canada will be the only developed country on this planet where banks are not taxed - this will increase our competitiveness sky high and enable Canada to aggressively pursue global finance jobs and offices fleeing highly taxed jurisdictions.

Also I think Harper should make a strong point about bringing a global securities regulator to be headed by Canada. We have shown the world that our system works and for that we should be allowed to reap the rewards. Clearly this regulator should be where the banks are and that's Toronto (mostly because I'd like an easier time finding a job when I graduate, among other things).. Regardless this entire financial fiasco of the past 2 years has done nothing but good to the Toronto financial industry.

I think we ought to be careful gloating about things. Yes, regulation here is much tougher than in other countries, but many members of the current government fought quite vocally against that fact, and the fact that the recession hit everybody and reminded everyone why you do not let the banks run buckwild was little more than luck. Had Harper allowed a deregulation in 2006, we'd be no better off than the USA right now. Hence, I'd advise Harper and Flaherty not to be too arrogant at the G8/G20 meetings. I don't think Harper is gonna have a hard time stopping the bank tax in Canada - the Liberals know the opportunity that simply having good regulation instead of taxation will bring. While there may certainly be a move away from the Europeans, the chances of us being a better situation than the United States is extremely remote, considering that Wall Street pretty much owns the United States Congress. As for the global regulator led by us, I'd love to see it, but we are only 2.3% of the world's GDP, we haven't got the influence to lead it, better system or not, and the Americans are astoundingly paranoid about global regulators of anything, and if they aren't in it but everyone else, again, the business will just go to New York.

[Looking/Up]

Why this could be Canada’s decade for economy, stocks



How Canada is outperforming

Scotia Capital economists Derek Holt and Karen Cordes Woods note this morning, not only is the Canadian dollar (CAD/USD-I0.95-0.003-0.29%) outperforming other currencies, so are Canadian stocks and sovereign bonds.

“In local currency terms, Canadian equities have also outperformed,” they say. “On a month-to-date basis during the period of heightened risk aversion, the TSX is down 3.8 per cent Most other global exchanges have suffered a worse plight. The DJIA and S&P500 are both down about 7 per cent, the Nikkei 225 is off 12 per cent, each of the FTSE 100, CAC 40, and Hang Seng are off about 6-7 per cent. Only the German DAX has fared better than the Toronto TSX via a comparatively mild 2.8-per-cent drop ... In [U.S. dollar] terms, Canadian stocks are on roughly even terms to U.S. stocks, and stronger yet against many other global exchanges.”

On the issue of government debt, the economists point out that yields on Canadian 10-year bonds “have benefited from a safe haven bid not terribly out of line with other key 10-year benchmarks in local currency terms.”

This is the backdrop for a key week in Canadian markets, as Statistics Canada reports Monday on how Canada’s economy performed in March and the first quarter. And expectations are high.

“Monday starts with a bang via expectations for about 6-per-cent annualized month-over-month growth in GDP during March over February to close off [a first quarter] that likely had Canadian economic growth doubling that of the United States as a clear sign of economic outperformance.,” the Scotia Capital economists said.

The Bank of Canada’s interest rate decision follows on the heels of the GDP report as the central bank meets Tuesday. Markets are still betting heavily - though not as heavily as before the recent turmoil in global markets - that Governor Mark Carney and his colleagues will raise their benchmark overnight rate for the first time since before the financial crisis and recession.

“My, my, aren’t we fickle?” BMO Nesbitt Burns deputy chief economist Douglas Porter said this morning. “One good rollicking day in the equity market, and now the markets are suddenly pricing in roughly a 70-per-cent chance of a Bank of Canada rate hike next week (up from less than 40 per cent at one point on Tuesday).”

http://www.theglobeandmail.com/repor...rticle1583950/

[salvius]

Originally Posted by TheMann2000

I think we ought to be careful gloating about things. Yes, regulation here is much tougher than in other countries, but many members of the current government fought quite vocally against that fact, and the fact that the recession hit everybody and reminded everyone why you do not let the banks run buckwild was little more than luck. Had Harper allowed a deregulation in 2006, we'd be no better off than the USA right now. Hence, I'd advise Harper and Flaherty not to be too arrogant at the G8/G20 meetings. I don't think Harper is gonna have a hard time stopping the bank tax in Canada - the Liberals know the opportunity that simply having good regulation instead of taxation will bring. While there may certainly be a move away from the Europeans, the chances of us being a better situation than the United States is extremely remote, considering that Wall Street pretty much owns the United States Congress. As for the global regulator led by us, I'd love to see it, but we are only 2.3% of the world's GDP, we haven't got the influence to lead it, better system or not, and the Americans are astoundingly paranoid about global regulators of anything, and if they aren't in it but everyone else, again, the business will just go to New York.

Yeah I agree, especially about the first part. The fact that our system was 'the best' wasn't so clear only a short few years ago when our system was widely pronounced as antiquated. Let's remember how Iceland gloated and was too good for everyone else AND how they were widely praised for a decade before the house of cards fell, so....

[DHLawrence]

It's unwise to gloat, but we can still grin smugly when nobody's looking

Good to see that Ontario is recovering. We have a lot of lost time to catch up on!

[PoscStudent]

These GDP growth estimates are always a bit weird depending on where they are coming from. I'm after seeing a couple this year showing that Newfoundland and Labrador will lead in GDP growth, followed by Saskatchewan, but NL will have very little growth next year. Then the Conference Board estimates BC and Ontario will lead in growth while NL will grow very little this year and by alot next year. I've seen several that have mentioned strong growth in BC and Ontario but I guess like most things we will have to wait till next year to find out how the provincial economies did.

[TheMann2000]

Originally Posted by salvius

Yeah I agree, especially about the first part. The fact that our system was 'the best' wasn't so clear only a short few years ago when our system was widely pronounced as antiquated. Let's remember how Iceland gloated and was too good for everyone else AND how they were widely praised for a decade before the house of cards fell, so....

That's the point, however. The house of cards part, I mean. There is more to come of this.

I'll make the prediction, right now - but the end of this decade, the Canadian dollar will be way above par with the US Dollar. By way above par, I mean the loonie worth maybe $1.50 US. Canada's resources and economic and financial stability are such that people sending their money here will know they won't lose their investments. By 2020, the US Dollar and the Euro will be a different story, and the economies showing real growth and currency stability - Canada, Australia and South Korea for sure, Japan, the UK and South Africa possibly - will be the places where people put their money, thus driving up the values of those currencies. (I say maybe for the last three because the UK and Japan have big debts, and South Africa still has political problems to grapple with.)

The Europeans face several countries that really do need to put their fiscal houses in order - Greece is the first but they won't be the last - and the US, which has managed to balance the books for three years since the Great Depression, is going to have to figure out how to do that without driving its economy into recession, and do so knowing that the United States Congress is almost totally subservient to corporate interests and their army of lobbyists. Both cases, they won't face those facts until a crisis hits, and by that point the money from smart people will be looking for other places to go. Hence, other nations benefit.

[Elnerico]

People always have short memories, especially those looking to make a quick buck and ride trends. So in 5 or 10 years when or if the global economy recovers and continues to grow at pre-recession rates all the money will go back in the high flying unregulated or low regulated countries.

[hakz2007]

Canadian stocks fall on concerns over European debt crisis

TORONTO, May 29 (PNA/Xinhua) -- Canadian stocks fell further Friday as Spain was downgraded on its debt rating. The S&P/TSX Composite Index closed 77.68 points, or 0.66 percent lower at 11,671.44. For the week, the bench mark equity index increased 1.30 percent.

Ten of the 12 sectors on the Toronto Stock Exchange (TSX) registered losses with the index measuring the diversified metals & mining sector losing 2.12 percent.

Western Coal Corp. declined 3.85 percent; Equinox Minerals Ltd. slipped 3.44 percent; and Teck Resources Ltd. dropped 2.69 percent.

Fitch Ratings downgraded Spain's long-term foreign and local currency issuer default ratings to AA+ from AAA on Friday. The index measuring the financials sector on the TSX decreased 1.36 percent. Canadian financial stocks were trading heavily with nearly twice the average volume.

Royal Bank of Canada, the country's largest lender, tumbled 2.57 percent. Toronto-Dominion Bank, Canada's second largest lender, lost 1.88 percent.

The U.S. Commerce Department said on Friday that consumer spending in the country failed to increase in April for the first time since September.

Data released by Statistics Canada on Friday showed that Canada's deficit on current transactions with the rest of the world narrowed in the first quarter, led by a larger trade in goods surplus and a reduced deficit on international travel.

On the currency front, the Canadian dollar depreciated against its U.S. counterpart on Friday.

One U.S. dollar was buying 1.0544 Canadian dollars at 5 p.m. local time (2100 GMT) on Friday, compared with one U.S. dollar buying 1.0484 Canadian dollars on Thursday.

http://www.pna.gov.ph/index.php?idn=...d=3&rid=278530

[Taller, Better]

Nothing new there. Stock market goes up and down daily. Our economy and our dollar is still outperforming many other countries.

[ssiguy2]

I think Canada's long term economic outlook is better than most but the figures they place on Canada's debt to GDP ratio are laughable. Few countries in the world have provinces/states that are as powerful as ours. If you were to combine the fed/prov/city total debts our figure comes out at about 70% of GDP. Its easy for federal governments to make their books look good when all they have to do is pass a lot of the expenses down to other levels of government.
This is the same as what the Americans do although their situation is far, far worse. The debt to GDP in the US is now a whopping 95% of GDP but when that is combined with state and municable debt the figure soars to 110%.
When these ddebt to GDP numbers, for any country, are examined they are only relevant if they include all government level debt as their is only one tax payer to support that debt.

[ssiguy2]

^ Sorry screwed the numbers a bit........................................the US federal debt is 90% and the with the state and municiple debt now combined at $3 trillion but the number still comes out to 110% debt to GDP

[isaidso]

Double post.

[isaidso]

Originally Posted by Taller, Better

Nothing new there. Stock market goes up and down daily. Our economy and our dollar is still outperforming many other countries.

You're drawing the wrong conclusions from that post. The interest lies in developing an understanding of what triggers sell offs/buying. It's key to tweaking investment portfolios.

I doubt anyone is drawing conclusions about the strength of Canada's economy based on that one posted.

[ditto]

this article may be a bit old but i ain't modest to post it again. [NOTE: Sorry. Since I'm a subscriber to FT, I want to respect their request not to publish the full article on the web. You can read the rest of the article by registering for free on their website, www.FT.com]



What Toronto can teach New York and London

By Chrystia Freeland
The Financial Times

Published: January 29 2010 17:20 | Last updated: January 29 2010 17:20

There’s something about Canada that inspires gentle mockery from foreigners, especially those who live south of the border. Kelly Ripa, the co-host of a popular US talk show, this month engaged in an extended on-air riff with her husband (don’t ask) about the absurdity of Canadian place names; Regina came in for a particular beating. South Park once invented a ditty – “Blame Canada” – devoted to bashing the Great White North. And at the elite end of the spectrum, Michael Kinsley, then editor of The New Republic, wondered what the most boring possible headline for a news story might be, and determined that “Worthwhile Canadian Initiative” was the winner.

This tendency to react to the mere mention of Canada with either yawns or guffaws may be why, as the world struggles to figure out what went wrong in 2007 and 2008, not much international attention is being devoted to figuring out what went right in Canada. Canada is the only G7 country to survive the financial crisis without a state bail-out for its financial sector. Two of the world’s 15 most highly valued financial institutions – a list dominated by China – are Canadian and a recent World Economic Forum report rated the Canadian banking system the world’s soundest. Even Barack Obama, on the eve of a visit last year to Ottawa, the Canadian *capital, admitted: “In the midst of the enormous economic crisis, I think Canada has shown itself to be a pretty good manager of the financial system and the economy in ways that we haven’t always been.”

View from the Top
Canada

Mark Carney, governor, Bank of Canada

Julie Dickson, Canadian bank regulator

One of the most important policy debates today – particularly in countries hardest hit by the crash, such as the US and UK – is what caused the crisis and what should be done to prevent a repetition. Inevitably, the discussion is hypothetical: even if we could agree on exactly what went wrong, no one can prove that any recommended policy changes would have averted the meltdown. That’s where Canada comes in. It is a real-world, real-time example of a banking system in a medium-sized, advanced capitalist economy that worked. Understanding why the Canadian system survived could be a key to making the rest of the west equally robust.


The first argument you are likely to hear when you start asking what made Canada different is cultural. Depending on your degree of fondness for Canucks, this thesis comes down to the notion that Canadians are either too nice or too dull to indulge in the no-holds-barred, plundering capitalism that created such a spectacular boom, and eventual bust, in more aggressive societies. A senior official in Ottawa likes to say that Canadian bankers are “boring, but in a good way. They are more interested in balance sheets than in high society. They don’t go to the opera.” Some of them – including the chief executive of the Royal Bank of Canada, the country’s largest bank – have never even been to Davos. According to Matt Winkler, editor-in-chief of Bloomberg News, “Canadians are like hobbits. They are just not as rapacious as Americans.” And Paul Volcker, the legendary inflation-slaying former head of the US Federal Reserve and an adviser to Obama, told me that Canada’s strength is “partly a cultural thing – they are more conservative”.



Chrystia Freeland is the FT’s US managing editor. Her last piece for the magazine was about Russian journalists working in Ukraine

Copyright The Financial Times Limited 2010.

[Looking/Up]

Canada’s economy on fire as GDP expands 6.1 per cent

Canada’s economy is on fire, surging 6.1 per cent in the first quarter at an annualized pace. As a measure of comparison, that compares to 4.9 per cent in the fourth quarter of last year, and just 3 per cent in the United States in the first quarter.

“Residential investment increased for a fourth consecutive quarter, as did consumer spending on goods and services,” Statistics Canada said this morning. “Export and import volumes both rose for a third consecutive quarter, with growth in imports outpacing growth in exports in the first quarter.”

http://www.theglobeandmail.com/repor...rticle1586378/

[Skybean]

Bank of Canada hikes interest rates



Carney becomes first central banker among G7 to raise benchmark from emergency low

Jeremy Torobin

Ottawa — Globe and Mail Update Published on Tuesday, Jun. 01, 2010 9:04AM EDT Last updated on Tuesday, Jun. 01, 2010 11:03AM EDT

The Bank of Canada raised its benchmark interest rate for the first time since 2007, saying inflation is unfolding as expected and that spillover from the European debt crisis has been limited, while stressing there remains “considerable uncertainty” about an “increasingly uneven” global recovery.

With his much anticipated decision to lift the central bank’s overnight rate by one-quarter of a percentage point to 0.5 per cent after more than a year at a record low level, Governor Mark Carney has become the first central banker in the Group of Seven to tighten since the financial crisis and recession began in 2008.

In a statement on the move, however, Mr. Carney and his rate-setting panel sought to emphasize that investors should not necessarily interpret the increase as the first in an uninterrupted series.

“This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending and the uneven global recovery,” the central bank said Tuesday. “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.”

Economists interpreted the Bank of Canada’s statement as a bucket of cold water on any remaining expectations for an aggressive tightening campaign, as policy makers nervously monitor economic and financial-market developments in the weeks leading up to their next decision on July 20.

“Those looking for a clear roadmap (or GPS) for the Bank’s tightening path will be sorely disappointed by today’s cautious statement,’’ said Doug Porter, deputy chief economist at BMO Nesbitt Burns in Toronto. ``The Bank has left its options wide open even on the July rate decision.’’

Markets clearly took the same message, with bond yields dropping and the Canadian dollar slipping after the decision, “definitely not standard fare for a rate hike day,” Mr. Porter noted.

The loonie fell 0.8 per cent against the U.S. dollar as of 9:45 a.m. in Toronto, while the yield on two-year Canadian government bonds retreated to 1.71 per cent from yesterday’s 1.82 per cent.

Eric Lascelles, chief macro strategist with TD Securities, said while he expects a second straight 25-basis-point increase on July 20, “barring significant negative developments either domestically or globally,” further moves won’t be any bigger.

“What is clear is that despite the ultra-low level of the overnight rate, the present environment is not one conducive to outsized rate hikes of the 50-basis-point or larger variety,” Mr. Lascelles said.

The central bank’s statement touched on themes that will no doubt be front-and-centre at the Group of 20 leaders’ meeting in Toronto at the end of June, where Canadian officials have said they will be pushing for continued efforts to smooth out the global imbalances that exacerbated the slump that much of the world is still clawing out of.

“The required rebalancing of global growth has not yet materialized,” the bank said, contrasting “strong momentum” in emerging markets with recoveries in economies such as the United States and Japan that remains “heavily dependent” on low interest rates and government spending.

“In general, broad forces of household, bank, and sovereign deleveraging will add to the variability, and temper the pace, of global growth,”’ policy makers said.

The bank flagged the possibility of “renewed weakness’’ in Europe, where drastic spending cuts and higher borrowing costs will be the likely result of continent-wide debt problems, but said that, so far, the effects of the crisis on Canada have been ``limited to a modest fall in commodity prices’’ and somewhat tighter financial conditions.

The Canadian economy, which on Monday posted a whopping 6.1-per-cent annualized growth rate for the first quarter – the fastest in more than a decade – is ``unfolding largely as expected,’’ the bank said, led mostly by a hot housing market, higher incomes and a labour-market recovery that have helped fuel consumer spending.

Still, the central bank suggested that household spending and the economy will slow in the coming months as consumers deal with higher borrowing costs and try to limit or reduce their debt loads and as government stimulus spending fades. As a result, an ``anticipated pickup in business investment will be important for a more balanced recovery,’’ the bank said.

Inflation, which the central bank has been watching closely for months, has been in line with policy makers’ projections to exceed 2 per cent this year and reflects a combination of strong domestic demand, slowing wage increases and ``excess supply’’ leftover from the recession.

The central bank also said it is making a technical, yet significant, change to re-establish ``normal functioning’’ of the overnight market, whereby its benchmark will return to halfway between the rate it pays to chartered banks to hold deposits and the amount that it charges private-sector lenders for loans.

With files from Bloomberg News

http://www.theglobeandmail.com/repor...rticle1587719/

[salvius]

Originally Posted by Looking/Up

http://www.theglobeandmail.com/repor...rticle1586378/

The fact that housing makes such a large portion of the recovery makes me more than a little bit nervous.