ALBERTA’S ECONOMY SET FOR STRONG GROWTH IN 2011 WITH BOOST FROM ENERGY SECTOR: RBC ECONOMICS
Comment – this is some of the data that was used in my MARKet Update / Buyers Report. Feel free to download it for free on my site here: http://markherman.ca/Rate2.ubr
ALBERTA’S ECONOMY SET FOR STRONG GROWTH IN 2011 WITH BOOST FROM ENERGY SECTOR: RBC ECONOMICS
TORONTO, Dec. 15 /CNW/ – Alberta’s economy continues to recover from its severe recession with real GDP set to grow 3.4 per cent in 2010 and then galloping to a solid 4.3 per cent in 2011, according to the latest Provincial Outlook report from RBC Economics. In 2011, RBC projects that Alberta’s economic growth will be second only to Saskatchewan, representing the fastest growth in the province since 2006.
Alberta’s strong forecast is owed to improvements in a number of areas, particularly the booming energy sector and increased job creation since spring which helped to bring down the stubbornly high unemployment rate.
“Improvements in the employment market helped reverse the net migration outflow to other provinces that earlier slowed population growth to the lowest rate in 15 years,” said Craig Wright, senior vice-president and chief economist, RBC. “These are the kinds of turnarounds that will spread the recovery more widely throughout Alberta’s economy next year.”
The RBC report notes Alberta’s employment sector is expected to lead the country with a rise of 2.3 per cent in 2011, up significantly from a scant 0.5 per cent in 2010. The anticipated increase represents the creation of 37,000 jobs and will usher in the highest total of new employment opportunities since 2007 which should ultimately contribute to a boost in population growth.
“With interest in developing Alberta’s oil sands growing ever higher, the gush of capital spending on megaprojects is expected to continue next year and beyond. This will pump tremendous activity into the provincial economy and act as a catalyst for both faster job growth and stronger migration from outside the province,” added Wright.
According to the RBC Economics Provincial Outlook, the impact of Alberta’s strengthening demographics will be especially positive for consumer spending in 2011 as retail sales are expected to soar to a rate of 5.6 per cent, higher than any other province. This, along with the 5.1 per cent increase in consumer spending expected this year, will go along way toward reversing the massive 8.4 per cent decline experienced in 2009.
Looking ahead to 2012, the rising tide of energy-related spending and the expanding of non-conventional oil production will continue to exert powerful lifting forces throughout the Alberta economy. RBC forecasts the province will sustain a solid pace of growth with GDP of 3.8 per cent which will keep the province near the top of Canada’s growth rankings.
The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales, housing stars and consumer price indexes.
Real gross domestic product rose 0.4% in November
Real gross domestic product rose 0.4% in November after growing by 0.2% in October. Oil and gas extraction led the way in November, followed by wholesale and retail trade, real estate and the finance and insurance sector. Manufacturing declined, largely as a result of temporary plant shutdowns for retooling in the motor vehicle assembly industry and shift reductions in the motor vehicle parts industry. Construction also decreased.
Mining and oil and gas extraction continue to strengthen
Oil and gas extraction grew 2.4% in November. This increase was mainly attributable to higher synthetic crude petroleum production following the completion of maintenance to upgraders. Natural gas production was unchanged.
However, support activities for mining, oil and gas extraction declined 3.4% as a result of decreases in rigging and drilling activities.
n mining, iron ore extraction grew 10.8% returning to its August level after two consecutive monthly declines.
Gains in wholesale and retail trade
Wholesale trade rose 1.5% in November on the strength of trade in machinery and equipment, farm products, building materials as well as food, beverage and tobacco products. Wholesale activity in motor vehicles fell during the month.
Retail trade advanced 1.4% in November after a slight decline the month before. It was the second largest monthly increase in 2010 after the 2.1% gain in March. Growth in November was mostly attributable to clothing and accessory stores, new car dealers as well as food and beverage stores. Retail activity at gasoline stations and home electronics stores declined.
Finance and insurance resume growth
The finance and insurance sector rose 0.7%. There were increases in the volume of trading on the stock exchanges, in personal lending and in mortgages. The sales of mutual funds declined.
Manufacturing down
Manufacturing declined 0.8% in November. Most of the decline was the result of temporary plant shutdowns for retooling in the motor vehicle assembly industry and shift reductions in the motor vehicle parts industry. Excluding the motor vehicle and associated parts industries, the manufacturing sector was down 0.2%. Output at refineries rebounded 4.6% following the end of maintenance work at various plants.
Real estate market up while construction drops
There was a widespread increase in the home resale market across the country in November, leading to a growth of 7.6% in the output of real estate agents and brokers. This marked a fourth consecutive monthly increase for this industry. However, its level of output was still 8% below that recorded in April.
Construction declined 0.4% in November. Residential building construction continued to retreat as a result of reduced demand for single and semi-detached homes. Non-residential building construction decreased 0.2% while engineering and repair work edged up 0.1%.
Canadians Better Off, Even If They Don’t Feel It
Comment – Politics aside, we are coming off of the worst economic recession of our lifetimes. Numbers below show us back to where we were before the recession started. Governments debt loads are supposed to be high, government spending was supposed to kick in to keep us going – and it did.
Canadians Better Off, Even If They Don’t Feel It
John Ivison, National Post ·
Jan. 23 marks the fifth anniversary of Stephen Harper’s 2006 election victory and in early February, he will pass Lester B. Pearson’s time in office to become Canada’s 11th longest-serving prime minister. As Mr. Harper told Postmedia News this week, it has been a roller-coaster ride: “Some days it feels like five months, and other days it seems like 50 years.”
The five-year milestone has presented the Liberal leader, Michael Ignatieff, with his latest electoral gambit — to ask middle-class Canadian families whether they are better off after half a decade of the Harper government?
In fact, by almost every pocketbook metric, Canadian families are better off than they were five years ago –even if they don’t feel it.
The new strategy emerged from research carried out by the Liberals’ pollster, Michael Marzolini, as part of his firm Pollara’s annual nationwide poll of Canadians’ personal financial expectations. He found a new sense of caution and retrenchment, after optimistic expectations for 2010 were not met.
According to the Pollara poll, middle-class Canadians feel themselves under siege, with four in 10 claiming their incomes are failing to keep pace with the cost of living. They are anxious about their retirement, family debt and the value of their investments. Many Canadians believe every step forward they make is being hampered by assaults on their incomes such as new taxes and user fees. Ominously for the government, they appear less than impressed about claims Canada is doing better than its international competitors — the economy may be improving but they feel their own situation is not.
Mr. Ignatieff has leapt on the survey’s findings on his current 20-event, 11-ridings winter tour, making the claim that Canadians are worse off and the economy is weaker.
He is gambling that voters look at their own situation and calculate whether they have done well over the past five years. If the answer is yes, they will vote for the party they voted for before but, if not, he hopes they can be persuaded to switch.
Mr. Ignatieff’s central contention is that Canadians’ standard of living — as measured by GDP per person–has fallen 1.3% since the Harper government came to power.
The only problem with this for the Liberal leader is that it isn’t true — real GDP per capita did fall between 2005 and 2009, the trough of the recession, but has since recovered. If you annualize the first three quarters of 2010, the numbers show real GDP per capita is up
0.2% over the 2005 figure.
Other indicators are similarly positive.
Average hourly wages have outpaced inflation, especially for men, who now earn $4 an hour more than they did at the end of 2005.
The fiscal and monetary response to the recession has created one very real problem identified by Mr. Ignatieff — an extremely high level of indebtedness. Encouraged by cheap interest rates, Canadians now owe $1.50 for every dollar of disposable income, up from $1.08 in 2006.
Yet, national net worth per capita, which measures the health of assets like homes and investments, stood at a record high of $179,000 in the third quarter of 2010, up from $155,000 five years ago. Even at the bottom end of the socioeconomic ladder, the number of children living in low-income families fell by 250,000 between 2003 and 2008.
Retirement income is another leading concern raised by the Liberals but many more Canadians are now members of registered retirement plans than in 2005.
And the feeling that the tax burden is growing is also illusory, at least according to the Fraser Institute’s Tax Freedom Day, the day on which the average Canadian family has earned enough money to pay all taxes imposed on them by three layers of government. It advanced to June 5 in 2010, from June 23 in 2005.
These bald statistics don’t tell the whole story, of course. In the intervening years, there was a painful recession that saw unemployment spike at 8.7% in August 2009 (it is now sitting at 7.6%, still higher than the 6.8% in 2005).
Canadians remain anxious. According to Mr. Marzolini’s research, two-thirds of the population thinks we’re still in recession.
Yet, crucially, voters do not seem to blame the federal government, perhaps accepting that, if things are not noticeably better than they were five years ago, they could have been immeasurably worse.
Non-Conservatives can claim with some justification that the Harper government’s record of achievement is pretty penny ante when compared with other five-year-old administrations.
But the picture improves when you consider what didn’t happen. Mr. Harper is an incrementalist who agrees with Canada’s longest-serving prime minister, William Lyon Mackenzie King, that “it’s what we prevent, rather than what we do, that counts in government.”
The pressures of power have forced Mr. Harper, by his own admission, to make compromises he never thought he would have to make. “We spent the first three years of our government in a situation where people were saying, ‘Why don’t you take more risks? Why don’t you make more grandiose commitments? Why don’t you have a bigger more ambitious agenda on anything?’ And then all of a sudden, we’re spending the next two years dealing with a crash in the global economy and trying to operate a situation where we’re trying to protect what everybody has. So things just change constantly and you do have to be adaptable,” he told Postmedia’s Mark Kennedy this week.
There appears to be some appreciation that the Conservatives have provided solid, if stolid, government through the recession.
An Ipsos Reid poll before Christmas suggested six in 10 Canadians believe the political process is operating well and there is no need for an election. They may not vote Conservative, but they are not so disgruntled they are demanding change — at least not to the extent they have coalesced around Mr. Ignatieff or any of the other opposition leaders. This bodes well for Mr. Harper, sincegovernmentstraditionally find themselves in real trouble when the time-for-change number rises above 60%.
“Every election comes down to that — continuity or change,” said Darrell Bricker, president of Ipsos Public Affairs. “Mr. Ignatieff is trying to increase the desire for change that is a pre-condition [for a Liberal government]. But Canadians are not overwhelmingly concerned about the economy and even if they become more concerned, his opponent is leading him on the issue by 20 points.”
The Liberals insist that stress about the future has created enough volatility to give them a fighting chance. “Perceived reality is often a self-fulfilling prophesy,” said Mr. Marzolini, the Liberal pollster, as he unveiled his New Year’s poll to the Economic Club of Canada.
Mr. Ignatieff had best hope so, otherwise Mr. Harper will pass both R.B. Bennett (five years and 77 days) and John Diefenbaker (five years and 305 days) to become Canada’s ninth-longest serving prime minister before the end of this year.
Canada Prime Stays at
Consumer Prime is at 3%. At it will stay the same as well. Nice break for us after the gov’t changes the mortgage rules the day before.
As most predicted it would, the Bank of Canada announced today it is maintaining its target for the overnight rate at one per cent.
Housing crash is not likely to happen in Canada.
Ben is one of the best economists around and is usually correct….
However, Tal said that if rates rise, mortgage defaults will actually drop. He explained that is because rising rates imply rising employment, which influences defaults more than anything.
TD mortgages get harder to get out of
Comment:
TD mortgages just became less appetizing as they are now very difficult to get out of. We do not use them much and now even less.
TD bank overhauls mortgage program
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.
Rate increases on hold for Bank of Canada
Preword: It looks like the Canadian interst rates can not rise above the US to much and the US will have to keep their rates the same for most all of 2010 and most of 2011. That means our rates will stay close to the same as now for another 18 months! Great news if you are on the variable rate mortgage.
We have variable rates are Prime – .65% right now, from good banks.
CIBC World Markets Inc. trims forecast for rate hikes and currency strength in Canada as economic growth outlook dampens abroad
TORONTO, Aug. 18 /CNW/ – Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.
… “Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest.”
While Canada is in much better economic shape – it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job – it “cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold,” Mr. Shenfeld contends.
For starters, an interest rate differential of 300-400 basis points would take the loonie “substantially stronger” creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.
Furthermore, the “external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline.”
The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are “lessons learned, we hope,” says Mr. Shenfeld.
“Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening.”
As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/gps_aug10.pdf
Prime rate increase in the cards
comment: Variable rates should stay a good mortgage option as Prime is expected to stay at 3% for the rest of the year. Prime – .6% will be a 2.4% mortgage rate and the fixed rates will stay around the 4% mark. The great thing is fixed rates are coming down now so a variable will save now and you can lock in later when the 5 year fixed is even lower.
Week Ahead: Rate hike in the cards
Kim Covert, Financial Post · Friday, Jul. 16, 2010
OTTAWA — Two major announcements bookending the coming week’s economic news will provide a clearer snapshot of the state of the Canadian recovery.
The Bank of Canada will be first up when it makes its monthly interest rate announcement on Tuesday. But that will come before Friday’s critical report from Statistics Canada on the country’s consumer price index for June.
The central bank raised its benchmark index rate in June by 25 basis points, and at the time expectations were that the rate would increase steadily. But in the weeks since that announcement concerns about a double-dip recession have been growing, increasing speculation that the bank would hold the course. Consensus expectation is for a 25 basis-point increase on Tuesday, bringing the rate to 0.75%, though analysts disagree on what will happen as the year unfolds.
“While both domestic and global conditions have deteriorated modestly since June, the underlying momentum in the Canadian economy warrants the continued normalization of policy in the near term,” wrote strategist David Tulk of TD Securities in a note to investors. “When we look further into the future, the impact of financial market turmoil and decelerating economic growth is more difficult to quantify. In recognition of this uncertainty, we have scaled back our forecast for rate increases, and now look for a year-end overnight rate of 1.25% and a rate of 2.50% by the end of 2011.”
Economist Michael Gregory of BMO Economics, who also calls for a another 25 basis point increase, said he expects the bank to make one more increase of that size in September then hold the line for the remainder of the year. CIBC is calling for the rate to reach 1.25% in October, followed by a pause lasting at least two quarters.
The Bank of Canada’s rate announcement will come ahead of the key June inflation report on Friday. The consensus expectation is for 0.1% month-over-month drop in the consumer price index on lower gasoline prices, while the core year-over-year inflation rate will be unchanged at 1.8%, below the Bank of Canada’s target of two%.
CIBC economist Krishen Rangasamy said that while the rate announcement will precede the CPI, he doesn’t expect the “milder” June prices will have any effect on the rate. He said July’s prices should get a bounce from the harmonized sales tax introduced on July 1 in Ontario in British Columbia.
The bank will also release its Monetary Policy Report on Thursday. Mr. Rangasamy doesn’t expect the bank to make material changes to its April forecast of 3.5% growth for the second half.
“The only thing will be perhaps in the tone of the report. We think that they might adopt a more cautious tone on the external environment, particularly what’s happening in Europe and elsewhere, with slower Chinese growth, so they might adopt a little bit more cautious tone as opposed to their upbeat tone in April.”
Statistics Canada reports in the coming week include securities transactions on Monday, travel data on Tuesday, wholesale trade on Wednesday, as well as employment insurance and retail trade data on Thursday.
On the corporate front, some major Canadian companies will be reporting earnings on Thursday, including Canadian National Railway, Shoppers Drug Mart and Loblaw Cos.
Mortgage Market Primer
Mortgage Market Primer (TD)
If you have any interest in the nitty gritty of Canada’s mortgage industry, TD Securities’ Eric Lascelles has put out this fantastic market overview: Canadian Mortgage Market Primer
Here are some of the more notable points…
- 70% of Canadian lenders are deposit-taking institutions (Page 1)
- 5-year GICs and the Interest Rate Act are two reasons Canadian mortgage terms are usually five years or less (Page 5)
- There is a difference between Adjustable Rate Mortgages (ARMs) and Variable Rate Mortgages (VRMs). Both have variable rates but the former has variable payments while the latter has “fixed” payments. (Page 5)
- For any term over five years, the pre-payment penalty cannot be greater than three months interest once five years have elapsed. (Page 7)
- “Given a mortgage delinquency rate of 0.44% and the assumption of a (pessimistic) recovery rate of 80%, this means that expected mortgage portfolio losses for Canadian lenders are less than 10 basis points per year for uninsured mortgages.” (Page 8)
- About 50% of Canadian mortgages are insured. (Page 8)
- “Even with an insured mortgage, the lending institution manages the mortgage, directly handling payment collection, foreclosure, and sale of the home, where applicable.” (Page 10)
- 29% of Canadian mortgages are securitized versus 60% in the U.S. (Page 10)
- $175 billion of the $275 billion in Canadian securitized mortgages (64%) are sold into the Canada Mortgage Bond (CMB) program. (Page 10)
- Canadian borrowers can usually prepay 10-25% of their mortgage each year without penalty, but the average prepayment is less than 1%. (Page 11)
- It is estimated that the Insured Mortgage Purchase Program (IMPP), which allowed the government to buy back mortgages during the credit crisis in 2008-2010, netted the government extra profit of roughly $187.5 million. (Page 11)
- Lenders (or their agents) must continue servicing a mortgage after it’s sold into the CMB program—including assuming all pre-payment and uncovered default-related costs. Mortgage Insurance does not make lenders completely whole in the event of default. (Page 13)
The CMB program intentionally operates on a break-even basis (Page 14)
- Mortgage defaults “would have to increase by three- to four-fold to compromise the profitability” of CMHC’s default insurance program. CMHC should have ~$8.8 billion in insurance retained earnings as a buffer for its insurance business in 2010. (Page 15)
- Like any insurance business, CMHC’s is not completely without risk. (See Page 16)
- The CMB program adds very little additional risk for CMHC. The underlying mortgages are already insured. (Page 15)
- 71% of mortgagors with CMHC insurance have “equity in their homes of more than 20%.” (Page 16)
- “Over 40% of CMHC’s total business in 2008 was in areas, or for housing options, that are less well served or not served at all by the private sector mortgage insurers.” (Page 17)