Prime to stay the same until March 2011
Report says BoC likely to hold rates until March 2011
This month’s RBC Financial Markets Monthly publication reports that the Bank of Canada is likely to hold rates until March 2010.
Report Excerpts:
Canada takes a breather after sprinting out of recession
With real GDP standing a hair’s breadth away from its pre-recession peak and final domestic demand already treading into new territory, reports of more moderate activity in July did not prove too surprising. The sharp recovery in the housing market started to stall in mid-2010 because pent-up demand generated during the recession was satiated and buying—ahead of the mild tightening in mortgage rules and the implementation or increase in the HST in three provinces—was exhausted. The robust sales pace left a high level of household debt in its wake resulting in the debt-to-income ratio rising to an all-time high in the first quarter.
Recent growth has not been strong enough to exert significant downward pressure on the unemployment rate and inflation pressures have been moderate with the core rate at 1.6%. The headline inflation rate was 1.7% in August, thereby holding below the Bank’s 2% target, even after the harmonization of provincial and federal sales taxes in Ontario and BC were incorporated into the price measure. Unlike in the US, where we expect that core inflation will remain very low, we forecast Canada’s core rate to hold just below the 2% target during the forecast horizon and gravitate above 2% in mid-2012.
Rate increases likely to resume in early 2011
Our overall assessment of the Canadian outlook has changed little in the past month, so we are maintaining our call that the Bank will gradually raise the overnight rate to 2.25% in the second half of 2011. This gradual reduction in policy accommodation will keep a lid on the degree that term interest rates will rise especially against a backdrop of very low U.S. rates. We trimmed our 2011 forecast for yields looking for the two-year rate to end 2011 at 2.85% and the 10-year bond yield at 3.75%.
Other highlights from this month’s Financial Markets Monthly:
- U.S. data have been a mixed bag and confirm that the U.S. recovery is continuing, albeit slowly. The risk of deflation, not inflation, appears to be at the top of the mind for policymakers now with the Fed likely to implement another round of quantitative easing to ensure that growth and inflation do not slow further.
- The uncertain global outlook is likely to be the dominant factor in the Bank of Canada shifting to the sidelines for the remainder of 2010.
- Policymakers in the UK are unlikely to deliver a further easing in policy unless conditions become much worse.
- The RBA stayed on the sidelines this month although the statement showed a clear tightening bias which sets up for a hike before year end.
- Canada’s economy sputtered in July after very robust domestic demand earlier in the year.
- Inflation remains mild with both the headline and core rates below the Bank’s 2% target.
- The uncertain global outlook is likely to be the dominant factor in the Bank shifting to the sidelines for the remainder of 2010.
Canada’s homeownership costs continue to climb despite slowing resale activity
TORONTO, Sept. 27 /CNW/ – Homeownership costs in the second quarter rose across Canada for the fourth consecutive time despite the recent slowing in resale market activity, according to the latest housing report released today by RBC Economics Research.
“Higher mortgage rates in tandem with a further appreciation in home prices boosted the monthly costs associated with carrying a mortgage on a typical home,” said Robert Hogue, senior economist, RBC. “This extended the deteriorating trend in affordability since the middle of last year; however, affordability levels in Canada generally remain within a safe range.”
The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a home of a certain category. During the second quarter of 2010, measures at the national level rose between 1.1 and 2.1 percentage points across the housing types tracked by RBC (the higher the measure, the more difficult it is to afford a home).
The detached bungalow benchmark measure rose by 1.9 of a percentage point to 42.9 per cent, the standard townhouse inched up by 1.1 of a percentage point to 34.1 per cent, the standard condominium climbed by 1.1 of a percentage point up to 29.3 per cent and the standard two-storey home experienced the largest increase, climbing 2.1 percentage points to 48.9 per cent.
The report notes that the slide in affordability over the past year has reversed approximately half of the considerable improvements in affordability witnessed in 2008 and early 2009.
RBC projects a temporary easing in housing affordability as a result of the recent decline in mortgage rates and the increasing evidence that home prices have started to stabilize in many markets. However, the Bank of Canada is expected to continue raising interest rates over the next 12 to 18 months which will become the dominant factor making homeownership less affordable once the near-term reprieve has passed.
“Current levels of affordability suggest some greater-than-usual stress weighing on Canadian homebuyers, but this does not represent an imminent threat to the market,” noted Hogue. “While we expect rising interest rates to increase mortgage servicing costs, a leveling off in home prices and increasing household income will partly offset the negative effect.”
Ontario and B.C. saw the most significant deterioration in affordability in the second quarter; however, some improvements in specific housing types occurred in Alberta (condominiums) and Saskatchewan (townhouses). All other provinces showed modest erosion, with the exception of two-storey homes in Manitoba where the rise in the RBC measure was quite substantial.
RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 74.0 per cent (up 1.7 percentage points from the last quarter), Toronto50.2 per cent (up 2.4 percentage points), Montreal 43.2 per cent (up 1.8 percentage points), Ottawa 41.2 per cent (up 3.6 percentage points), Calgary 39.2 per cent (up 0.9 percentage point) and Edmonton 34.7 (up 2.5 percentage points).
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Homeownership in B.C. is testing household budgets with affordability deteriorating again in the second quarter despite downward pressure on home prices and market activity sinking since the start of this year. RBC’s measures rose between 1.1 and 2.5 percentage points, representing some of the strongest increases among the provinces, and are near all-time highs for all housing categories. Very poor affordability is likely to restrain demand in the period ahead.
- Alberta: Affordability measures have improved in Alberta since early 2008 as a result of lacklustre housing market conditions. The second quarter saw a mixed picture with prices easing slightly for condominiums but rising in all other categories. RBC notes that affordability measures are at or below their long-term averages, implying little downside risk to the market and boding well for a strengthening in housing demand once the provincial job market shows more substantial gains.
- Saskatchewan: Rising mortgage rates during the quarter caused further deterioration in affordability for most housing types in the province. With the sole exception of townhouses edging lower, increases in affordability measures pushed levels further above long-term averages, indicating that some tensions may be building. RBC expects a strong rebound in the provincial economy this year and next which is likely to help ease such tensions.
- Manitoba: Sellers kept a firm hand on pricing by reducing the supply of homes available for sale in the province, resulting in home prices continuing to appreciate, particularly for two-storey homes, which is translating into further deterioration of housing affordability. Homebuyers are feeling more pressure with affordability measures standing close to long-term averages.
- Ontario: After setting new record highs this past winter, home resales in the province have since fallen precipitously due to a number of factors including the HST, changes in mortgage lending rules and the rush of first-time homebuyers to lock in low mortgage rates. Housing affordability in Ontario continues to reverse the considerable improvements achieved in late-2008 and early-2009 with measures increasing for a fourth consecutive time in the second quarter, representing some of the largest increases among the provinces.
- Quebec: Quebec’s record-breaking housing market rally proved to be unsustainable in the second quarter with resale activity settling to a pace comparable to levels witnessed in 2006-2007, which were considered to be fairly vigorous at the time. Affordability was hampered by home prices trending upward with RBC affordability measures now at or very close to the pre-downturn peaks and exceeding their long-term averages. Further increases in homeownership costs could have a more visibly adverse effect on housing demand.
- Atlantic Canada: The East Coast housing market was not immune to the significant downturn in activity that swept across the country since spring with housing resales falling back across the region to the lows reached during late-2008 and early-2009. Cooling demand loosened up market conditions, restraining home price increases and limiting the rise in affordability measures which remain very close to long-term averages. Overall, housing affordability in Atlantic Canada remains attractive and signals little undue stress at this point.
Interesting inside view of the banks and mortgages
Banks hold most of the cards in mortgage game
John Greenwood, Financial Post · Friday, Sept. 17, 2010
To understand the housing market and where it’s headed, it’s a good idea to take a close look at the big banks.
As providers of more than 60% of home loans in Canada they are major players, determining everything from who gets to be a buyer to what people can afford to pay.
It’s no surprise that mortgages are the biggest single asset class held by the banks. According to the Bank of Canada, the chartered banks had $495-billion of mortgages on their balance sheets as of this month, or about half of all outstanding home loans — and that doesn’t include the billions of dollars of home loans that the banks have sold into the Canada Mortgage Bond program.
Mortgage finance is big business for the banks, and it’s also a cash cow for several reasons. For one, because banking is an oligopoly in Canada, players pretty much get to decide how much they will charge. Unlike the United States where thousands of lenders compete tooth and nail for business, the industry in this country is concentrated in the hands of the banks and the credit unions, with a handful of smaller players focusing on borrowers the banks don’t want to deal with.
Bill Downe, chief executive of Bank of Montreal, recently explained it this way to an investor conference: “We don’t believe we compete on price.”
Another reason banks like the business is because the riskiest mortgages are insured by the Canada Mortgage and Housing Corp., a Crown corporation. In the event of a worst-case scenario, it is the taxpayer who shoulders the risk of default. The idea is to make mortgages cheaper and therefore more affordable for those at the lower end of the income scale.
In practice the banks don’t pass on all the positive lift from government support to their customers.
“The system is founded on a sovereign entity that guarantees risky mortgages,” said Peter Routledge, an analyst at National Bank Financial.
In the late 1990s, the banks added a new twist to the business model as they began securitizing, or selling, parts of their mortgage portfolio. Securitization had caught on in the United States long before it did in Canada, so lenders in this country were merely copying what they saw as a proven and highly beneficial innovation.
Essentially, it allowed them to swap baskets of loans that might not pay off for several decades for a lump sum. In other words, instant liquidity, which they could then use to make more home loans. The result: The market for Canada Mortgage Bonds has jumped to nearly $300-billion today from less than $10-billion in 2001.
During the financial crisis, while private sector investors fled, the Bank of Canada and the federal government kept the securitization market going, buying up tens of billions of dollars of securitized mortgages so Canadian banks could continue to lend. It proved to be a vital lifeline to the banks during the tough times, providing a key source of liquidity that was virtually absent from the global banking system.
As a way to keep the Canadian financial system going it was a great strategy, but there were unintended consequences.
For instance, banks soon came to rely on securitization to boost their results.
According to a 2009 BMO Capital Markets report, as much of 15% of quarterly bank profits were generated by securitization that year. The problem is that such gains are but a one-time boost instead of a steady stream of interest payments that would amount to a much bigger profit if the mortgages stayed on bank balance sheets.
“This isn’t a positive development,” said the BMO report by analyst Ian de Verteuil (now with the Canada Pension Plan Investment Board).
Yet another concern is the impact on consumer behaviour. Because of the profits that mortgages and securitization generate, banks have enormous incentive to grow the business, which they do by keeping interest rates low and easing loan conditions. Consumers have responded by taking the cheap money offered and bidding up house prices across the country. So even as real estate was collapsing in the United States and much of Europe, the market in this country — apart from a brief period in 2008 and 2009 — continued to expand.
Canadian household debt compared to income is now sitting close to record levels, according to Statistics Canada, and that’s prompted a spate of warnings from rating agencies and others. This week the OECD said in a report that ballooning consumer debt has left Canadians with “growing vulnerability” to adverse economic shocks.
Meanwhile, equity markets have been treading water since the start of the year and the economic recovery is looking increasingly wobbly. In a worst-case scenario a spike in mortgage defaults would likely result in a significant housing market correction.
The good news for the banks is that they are largely protected from such a situation because the riskiest mortgages are covered by CMHC insurance.
Experts, however, say that despite the concerns, Canada’s housing market remains relatively robust.
Over the past 12 months lenders along with the CMHC have taken steps to gently tighten mortgage conditions, shortening the maximum amortization and requiring borrowers to put up more capital. As a result, they say, the froth has come off the market and “balance” has returned.
The bottom line is that “the system is moving in the right direction,” said Mr. Routledge.: http://www.financialpost.com/news/Banks+hold+most+cards+mortgage+game/3541007/story.html#ixzz101gAAq47
Canada’s economic growth expected to continue in 2010
TORONTO, Sept. 10 /CNW/ – After rapid gains in the early part of the year, Canada’s economy slowed in the second quarter and is expected to rebound only modestly over the second half of the year, according to the latest Economic Outlook report from RBC Economics.
RBC slightly pared back its 2010 forecast, expecting GDP growth of 3.3 per cent which is down from 3.6 per cent projected last quarter.
“While Canada’s second quarter growth put real GDP close to its pre-recession high, concerns in the U.S. and nervousness about the health of the global economy are weighing on the outlook for the second half of the year,” said Craig Wright, senior vice-president and chief economist, RBC.
RBC forecasts that the economy will continue to grow and that the output gap will be completely eliminated by mid-2012. The labour market has recovered 94 per cent of the jobs lost during the recession and the unemployment rate is expected to decline to 7.3 per cent by the end of 2011, from the 8 per cent that prevailed the second quarter of this year.
With government infrastructure spending to be exhausted in the first quarter of 2011, there will be pressure on the private sector to fill the void and sustain economic growth.
GDP is expected to rise 3.2 per cent in 2011, down 0.3 percentage points from projections in last quarter’s Outlook. RBC notes that core inflation has been stable through the economic downturn and expects it to remain anchored around the Bank of Canada’s 2 per cent mid-range target.
“Global financial conditions have not been severely damaged by the European sovereign debt crisis as previously feared,” said Wright. “With central banks pledging to do whatever is necessary to keep the recovery on track, interest rates will remain low, supporting business and consumer spending once confidence is restored.”
RBC adjusted its U.S. GDP forecast to 2.7 per cent in 2010 and 3.0 per cent in 2011, compared to 3.1 per cent and 3.4 per cent the previous quarter, in light of the sharp weakening in real GDP in the second quarter and disappointing reports on the housing and labour markets over recent months.
According to the report, the Canadian dollar has been hurt by concern about the U.S. and global recovery continuing, with an attendant downward impact on commodity prices, and will likely remain under pressure until the risk of another downturn in the global economy dissipates. RBC forecasts that the Canadian dollar will close out 2010 at 93.45 U.S. cents and will again trend upward toward parity by mid-2011.
At the provincial level, RBC expects all provincial economies to grow in 2010; however, the downshift in economic momentum prompted growth forecasts for most provinces to be revised lower in 2010 with the exception of Saskatchewan (increased to 6.3 per cent from 3.8 per cent) and Alberta (up 3.5 per cent from 3.1 per cent). The largest downward revisions were made to Manitoba (down 0.9 per cent to 2.0 per cent) and Newfoundland & Labrador (from 4.1 per cent to 3.3 per cent). All other adjustments were fairly modest from June and are as follows:
– BC: growth of 3.3 per cent, revised lower from 3.5 per cent
– ON: growth of 3.5 per cent, revised lower from 3.8 per cent
– PQ: growth of 3.0 per cent, revised lower from 3.5 per cent
– NB: growth of 2.3 per cent, revised lower from 2.4 per cent
– NS: growth of 1.8 per cent, revised lower from 2.2 per cent
– PEI: growth of 2.1 per cent, revised lower from 2.6 per cent
British Columbia’s economy soldiers on
Despite global economic uncertainty, British Columbia’s economy is holding its ground with a projected growth rate of 3.3 per cent in 2010, according to a new report released today by RBC Economics.
RBC revised its forecast slightly lower by 0.2 per cent from the previous Outlook, but notes that that the forecasted growth is a welcome about-face from the recession and the estimated decline of 2.4 per cent suffered last year.
“B.C.’s economy continues to demonstrate signs of vigour confirming that last year’s recession is indeed a thing of the past,” said Craig Wright, senior vice-president and chief economist, RBC. “Although some of the jump coming from sectors experiencing a revival this year is likely to come under pressure later this year, fairly solid forward momentum will be maintained overall.”
B.C.’s economy has significantly benefited from stronger commodities markets with softwood lumber, market pulp, coal, natural gas and copper all well above year-ago levels. The resource sector’s recovery has been a big boost to the trade performance of the province, with the value of merchandise exports increasing at a double-digit rate so far this year. RBC does caution, however, that renewed weakness in U.S. residential construction is likely to create further headwind for the B.C. forest products sector and provincial exports in the near term.
According to the RBC Economics Provincial Outlook, B.C.’s economy continues to benefit from government stimulus with sharp increases in capital spending fueling non-residential construction. The housing market, however, has yet to find middle ground. After considerable swings since the end of 2007, the market is moving downward, likely reflecting the unwinding of earlier juiced-up demand from buyers advancing purchases to lock in exceptionally low interest rates and to beat the introduction of new mortgage rules in April and the HST in July.
“The wildcard for B.C.’s economy is the housing market,” added Wright. “We expect housing activity to stabilize during the second half of this year, although poor affordability levels in markets such as Vancouver pose some downside risk.”
RBC expects B.C.’s positive outlook to continue through 2011, although some modest slowing of growth is likely to occur, and projects real GDP growth of 3.1 per cent next year.
The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales, housing starts and consumer price indexes.
Atlantic Canada set for moderate economic growth in 2010
Notwithstanding some near-term softness in the North American and global economies, Atlantic Canadian provinces are set for growth in 2010, according to the RBC Economics Provincial Outlook released today. Improvements in the commodities and construction sectors will help reverse the modest contraction experienced in the region, overall, last year
“While a new round of economic uncertainty south of the border is casting a shadow on the economic performance, all the Atlantic provinces are poised for growth in 2010,” noted Craig Wright, senior vice-president and chief economist, RBC. “However, the pace is generally expected to be slower than the national average.”
In Nova Scotia, RBC is projecting a 1.8 per cent rate of growth in 2010, which is the slowest rate among the provinces.
“Nova Scotia’s economic growth is being held back by continued declines in natural gas production,” said Wright. “Nonetheless, overall growth will still be achieved thanks to solid gains in retail sales and a rebound in the manufacturing sector amid rising demand for tires and improved pulp and paper markets.”
The RBC report notes that Nova Scotia’s outlook for next year calls for a below-average performance once again, as fiscal restraint, the end of stimulus spending and an expected reduction in major investment projects exert a restraining impact.
“On the bright side, provincial exports should receive a boost from the start of production at Deep Panuke natural gas project next year. We expect Nova Scotia’s economy to grow by 1.5 per cent in 2011,” added Wright
New Brunswick’s economy has received a boost from a broad recovery in the commodity market in 2010, with growth expected to reach 2.3 per cent. Increased energy production and more stable natural gas prices have improved the province’s nominal energy exports by 41 per cent year-to-date. A rebound in the manufacturing sector, along with higher prices for the province’s food, energy and forestry products also contributed to economic growth in New Brunswick.
“Looking ahead, the continued recovery in the world economy should boost global demand for provincial exports with consumer spending rising slightly amid employment gains,” explained Wright. “While non-residential investment is expected to slow along with the removal of considerable stimulus spending, we’re forecasting real GDP growth of 2.2 per cent for New Brunswick in 2011.”
After experiencing the country’s steepest real GDP decline in 2009, Newfoundland and Labrador is regaining positive momentum this year as a recovery in mineral extraction and other sectors appear to be gaining a firm foothold. RBC’s expects this will contribute to a fairly solid 3.3 per cent growth rate in 2010 overall.
Non-residential investment in the province is expected to surge by 30 per cent in 2010 and will likely be a steady source of economic strength through the medium term. Metal mining output is bouncing back strongly and improved commodity market conditions will also provide a significant boost to the provincial government’s crude oil royalty revenues.
“We expect that Newfoundland & Labrador’s momentum will carry into 2011 with growth remaining steady at 3.3 per cent, as a result of strong capital investment and further gains in the mineral extraction sector,” said Wright.
Prince Edward Island, the sole province to avoid a contraction of economic activity in 2009 with an estimated 0.2 per cent gain, will see a modest pick up in growth in 2010. RBC forecasts real GDP to grow by 2.1 per cent in 2010.
The construction sector has been a significant source of strength for the province’s economy so far this year and firm labour market conditions have also bred solid wage growth which in turn is driving strength in retail sales. On the downside, sales of manufactured durable goods are lower year-to-date, and the agri-food sector is also is facing headwinds. Tourism has also been hit hard by the poor labour market conditions in the U.S. and a stronger Canadian dollar.
“Increasing government spending and continued improvement in the global and U.S. economies, which is expected to strengthen demand for agricultural products and boost tourism, bode well for P.E.I. We expect growth to accelerate slightly to 2.4 per cent in 2011,” added Wright.
Saskatchewan leading the country in economic growth
Saskatchewan’s economy is set to lead the country with a robust growth rate of 6.3 per cent in 2010, up significantly from 3.8 per cent in the previous Outlook, led by a huge increase in potash production, according to a new report by RBC Economics.
“Large cutbacks in potash production were a main factor contributing to the contraction in Saskatchewan’s economy in 2009,” said Craig Wright, senior vice-president and chief economist, RBC. “The positive outlook this year reflects recent indications of a sharp reversal of the weakness in potash production, in addition to projected gains in the manufacturing, wholesale and retail trade industries.”
According to the RBC Economics Provincial Outlook, potash production skyrocketed by 130 per cent in the first five months of the year which is expected to make up for weakness in the oil and natural gas production sectors. Growth in province would be higher had the agricultural sector not been impacted by wet conditions reducing seeding and grain quality; however, this negative effect has been tempered by a rise in global crop prices.
Elsewhere in the Saskatchewan economy, recent monthly data suggest that positive growth has returned in the manufacturing and wholesale trade sectors, after both declined sharply last year. The retail trade industry also appears to be bouncing back, albeit more modestly, with retail sales up during the first half of this year, benefitting from gradually rising employment.
“We expect growth in the province to moderate in 2011, as GDP is projected to rise a still robust 4.8 per cent with continued growth in the global economy leading to an increase in energy production and agricultural output,” added Wright.
Energy sector fueling Alberta’s economic recovery
Alberta’s economy is gradually recovering from last year’s sharp contraction with real GDP set to grow 3.5 per cent, reversing most of the estimated 4.5 per cent decline in 2009, according to the latest Provincial Outlook report from RBC Economics.
Strong growth in the province is largely credited to energy-related activity. In particular, Alberta’s oil and gas sector is making a comeback amid improved market conditions and recent changes in the province’s royalty regime which have restored Alberta’s royalty competitiveness.
“Strong sales of crown lands for oil and gas development indicate a renewed desire to develop Alberta’s oil and gas resources – land acreage more than doubled during the first seven months of this year and land value climbed nearly eleven-fold,” said Craig Wright, chief economist, RBC. “This rebound signals greater strength in oil and gas drilling going forward.”
Newly completed or expanded oilsands projects are boosting bitumen output to record levels. Total bitumen production is on pace to grow at the fastest pace since 2006, balancing out continued declines seen in conventional crude oil and natural gas production.
According to the RBC Economics Provincial Outlook, Alberta’s economic recovery is still behind in many sectors. Employment gains to date have been slow, deterring the influx of workers from other provinces which has in turn negatively impacted home resales. Retail sales have weakened in recent months after posting a strong start to the year and while
manufacturing sales are bouncing back, the gains have been modest.
“While we would like to see stronger recovery in a wider spectrum of sectors, overall growth in the province is rebounding solidly and the lagging sectors are expected to soon benefit as renewed strength in energy-related activity feeds through the rest of the economy,” added Wright.
By next year, the recovery will be more broadly based translating to an even faster rate of growth in the provincial economy. RBC forecasts growth of 4.3 per cent in 2011.
Ontario’s recovery on track but the pace will slow
After a burst of activity late last year and early this year, Ontario’s economy will settle down and post an average growth rate of 3.5 per cent in 2010, just slightly stronger than the national average of 3.3 per cent, according to the latest Provincial Economic Outlook report released today by RBC Economics.
“The rapid cooling of Ontario’s housing market since the spring will have a restraining impact on economic growth in the last half of 2010, as will the soft patch into which the U.S. economy recently entered,” said Craig Wright, chief economist, RBC. “Still, the provincial economy will remain solidly supported by continued capital expenditures, steady employment gains and rising consumer spending.”
The report notes that very strong growth in the fourth quarter of last year and first quarter of this year resulted in an impressive 70 per cent recovery of real GDP which was lost during the recession. This strong momentum was broadly based but received much of its thrust from a surge in the housing sector, where a spectacular rebound in housing resales ultimately benefitted retailers and homebuilders.
“Investment in machinery and non-residential construction also contributed meaningfully to growth. This is a reflection of both governments stepping up their expenditures on public infrastructure and businesses boosting their capital spending,” added Wright. “This burst of overall economic activity fostered job creation in the province and helped reduce the unemployment rate from its 16-year high reached late last year.”
Ontario’s economic growth in the remaining months of 2010 will benefit from capital expenditures by all levels of government running full-tilt with the deadline for completion of work receiving funding from the federal Action Plan looming in March 2011. Sustained improvement in the labour market also bodes well for continued consumer spending at the shopping malls and car dealerships.
RBC forecasts Ontario’s economy to continue at a healthy pace in 2011 with real GDP growth set to ease to 3.2 per cent.
Quebec’s economy lags but still poised for highest growth in 10 years
Quebec’s economy is projected to grow by 3.0 per cent in 2010 and 3.1 per cent in 2011 – growth rates that have not been reached in 10 years, according to the latest RBC Economics Provincial Outlook report.
“We expect Quebec’s economy to remain resilient in the period ahead with strong contributions in non-residential construction and mining,” said Craig Wright, senior vice-president and chief economist, RBC. “Despite some of its sub-sectors continuing to face challenges, the province’s manufacturing sector, overall, could well add to growth for the first time since 2005.”
After avoiding the worst of the recession, Quebec’s economy, fuelled by highly stimulative monetary and fiscal policy, participated fully in the North American economic activity rally late last year.
“While growth in the latter part of 2009 was largely attributed to government stimulus and strong rebounds in the housing and mining sectors, the first quarter of 2010 saw growth spreading to other sectors, including consumer spending, services, manufacturing and business investment,” added Wright.
In more recent months, the overall pace of growth has slowed even further as key driving forces such as the housing market have calmed considerably since the spring. Declines in automotive sales have weighed down the provincial retail trade industry. Despite being pumped up by massive public infrastructure work programs, the non-residential construction industry is showing signs of slowing mid-year.
Nonetheless, at 3.0 per cent, the projected growth for this year will be quite respectable.
Manitoba’s economy remains on steady growth path though pace revised lower from last quarter
Manitoba’s economy is expected to grow by 2.0 per cent in 2010 thanks in part to rebounding mining and oil and gas sectors, according to a new report released today by RBC Economics.
“While the rate of growth is slightly lower than most other provinces, there isn’t as much of a need for Manitoba to play catch up as its economy outperformed most other provinces through the recession,” said Craig Wright, senior vice-president and chief economist, RBC. “The modest growth this year has been partly impacted by the winding down of key capital spending projects as well as some weakness in the agricultural sector.”
According to the RBC Economics Provincial Outlook, Manitoba’s economy is benefiting from a solid rebound in its mining and oil and gas extraction sector, which is expected to rise by 6.0 per cent following a 2.7 per cent drop in 2009. Increasing global demand is contributing to the resumption of zinc and gold production from facilities that were previously shuttered.
With infrastructure projects such as the Keystone pipeline and the Winnipeg International Airport completed or nearing completion, downward pressure will be felt on Manitoba’s construction sector in 2010. However, RBC notes that continued work on the Canadian Museum for Human Rights and an expected increase in residential construction will likely limit the extent of decline to about 2.0 per cent.
A significant drop in grain production is hampering the province’s growth this year; however, an expected strengthening in livestock production will soften some of the negative impact, limiting the decline in Manitoba’s overall agricultural sector to 8.0 per cent in 2010, following a 4.4 per cent drop in 2009.
After the province recorded only an easing in the decline of manufacturing sales in the early part of the year, RBC expects greater manufacturing strength to emerge during the last half of 2010 as the U.S. recovery regains some heft.
“Looking ahead to 2011, an expected bounce back in agricultural production and continued global economic recovery spurring further gains in the mining, oil and gas and manufacturing sectors bode well for the province and we expect that Manitoba’s economic growth will accelerate to 3.8 per cent,” added Wright.
Fears of Canadian Housing Market Slump Overblown
Fears of Canadian Housing Market Slump Overblown
The 30% drop in seasonally-adjusted monthly housing resales in the first seven months of this year has raised fears that a full-blown slump is in the works for Canada. Last year’s spectacular rally, which not only contrasted sharply to the moribund state of housing in most other parts of the developed world but also heated up conditions to even greater levels than those which prevailed in 2007, are perceived by some as evidence of a bubble threatening to burst anytime.
- The sharp decline in housing resale activity since the beginning of the year has ignited fears that the Canadian market has started to crash.
- In large part, such concerns are based on the belief that the spectacular run-up in prices in the past several years reflected bubble-like conditions, which will inevitably end up in a gut-wrenching correction.
- While we agree that housing prices are currently historically elevated, we do not believe that any major slump will necessarily ensue.
- Housing affordability – the best indicator of underlying market tensions, in our view – has deteriorated in recent quarters but remains much better than it was in the late 1980s and early 1990s when bubbles clearly caused the Canadian market to meltdown in the years that followed.
- The further expected modest erosion of affordability in the period ahead is seen to cool housing demand not deep-freeze it.
Home prices, overall, are generally expected to stay above water in Canada, although there are some local markets, such as such as Vancouver and, possibly, Montreal, where very poor affordability could well lead to declines to correct these imbalances.
Such fears are rooted in the significant price gains since 2001 that far exceeded household income growth in Canada. Home prices nearly doubled nationally during that period, while disposable income grew by less than 50%. The ease with which the Canadian market recovered the losses incurred during the (short-lived) downturn of the latter part of 2008 and early 2009 and with which prices surpassed previous record highs during the rally only feed the notion that the Canadian market is being driven by irrational behaviour.
However, we find little compelling evidence of irrationality or bubbles in the overall Canadian market relative to historical patterns.
One in five Calgary companies plan on hiring
One in five Calgary companies plan on hiring: Economists
Calgary job seekers could close the year on a happier note, with one in five Calgary companies planning to hire within the next three months, a sign the city’s economy is stabilizing after a rocky patch, economists say.
“It’s all very positive news,” said Randy Upright, CEO of Manpower’s Alberta region, adding only four per cent of employers expect to cut back their labour force between October and December.
He added that the numbers show a “more conservative kind of survey” than those seen during boom times.
As well, the number looking to add employees is double what it was in the same period last year, when only 11 per cent were in that position.
And it’s an eight percentage point increase over July to September when 15 per cent planned to hire.
With 71 per cent anticipating the status quo until the end of the year, “there’s a continuing sense of stability overall,” said Upright. “That’s what we’re really happy about.”
In 2009, hiring intentions in Calgary sank to their lowest levels in 15 years.
Todd Hirsch, senior economist with ATB Financial, speaking generally about Calgary’s economy, said stable is good after a couple years of volatility.
“The phrase I’ve been using lately is sunny with a chance of showers,” he said to describe the situation in the city.
With some uncertainty still in the air, Hirsch said employers aren’t rushing to add staff they may have to lay off should things take a turn.
Citing fluctuating oil prices and the low price of natural gas, “it’s enough to rattle people,” he said.
Manpower Canada’s employment outlook survey released today, which includes 1,900 employers across the country, found 23 per cent in Calgary are looking to hire, compared with 21 per cent nationally. Across Canada, the number planning to cut jobs was seven per cent, with both figures are better than during the same period last year.
Manpower said it’s the strongest national outlook in almost two years.
A Robert Half International employment report, which canvassed more than 1,000 executives in Canada about their hiring at the professional level, found a net 10 per cent plan to add jobs, a two percentage point increase over the previous three months.
Calgary has seen its unemployment rate start to decline, hitting 6.9 per cent in July, down from 7.5 per cent in June.
Hirsch said it looks worse than it is because Calgarians have been used to a rate of about three per cent.
However, while the province added 9,000 jobs in July, on top of 5,700 added in June, all those were attributed to the creation of part-time positions and in both months there was a decrease in full-time jobs.
In July, Canada added 129,700 part-time jobs but lost 139,000 full-time positions.
According to the Manpower Canada survey, the most optimism for job creation was seen in the mining and manufacturing-durable goods sectors, the best in a decade.
On Friday, the United States reported job gains of 67,000 in the private sector, which was better than expected, with the economy losing 54,000 jobs overall — better than the 120,000 predicted.