After surging 0.6 percent in January, Canada's GDP edged down 0.1 percent in February, its first monthly decline since September. Although the decline was broad-based, most analysts appear to have been pleasantly surprised by the data: given the strength in January, they had been expecting greater pullback.
Remarkably, a quick perusal of the main media websites suggests that precisely no-one is using the data as a pretext to call for an imminent return to recession. That's quite a contrast to the same period last year, when a couple of months of weak data had the pundits falling over themselves to call for a "technical recession". Most analysts seem confident that the outcome for the first quarter as a whole will be solidly positive; oil and gas prices seem to have bottomed out (though there may be more bad news to come in terms of exploration activity) and the exchange rate remains supportive of growth in non-resource sectors, including manufacturing.
The markets' more positive view of Canada's prospects is reflected in the continuing recovery of the exchange rate, which today briefly traded above 80 cents (US) for the first time since late June 2015. The C$'s recent strength is partly a reflection of the overall weakness in the US dollar, but it is clear that investor attitudes towards Canada have turned around drastically since the beginning of this year. The currency's rebound ensures that the Bank of Canada will stand pat on rates, even if the Fed carries through on this week's hint that another hike in the Fed funds rate may be in the offing.
One beneficiary of the stronger economy seems to be the Federal government budget. It was reported today that the budget was in surplus to the tune of $7.5 billion in the first 11 months of the current fiscal year (i.e. March 2015 to February 2016). This doesn't guarantee a large surplus for the full year -- it's quite possible that the Government will front-load some spending into March in order not to paint too rosy a picture, and the "thirteenth month" (between the end of March and the final closing of the books on the fiscal year) has a habit of eroding the apparent surplus. Even so, it seems clear that Finance Minister Bill Morneau has much more fiscal latitude than he wants us to believe. The question, as noted here before, is how he chooses to use it.
Friday, 29 April 2016
Sunday, 24 April 2016
Mein Trumpf
Despite the Nuremburgesque scenes at some of The Donald's campaign rallies, I haven't been taking the comparisons between him and Adolf Hitler all that seriously. I don't know, maybe you haven't either.
This movie, "Look who's back", may just change your mind. It envisages The Fuhrer waking up in modern-day Berlin. As soon as he gets himself orientated he stumbles into a career as....a reality TV star. Things take off from there. It's hilarious and scary at the same time -- a bit like Trump, when you come to think about it. You can find the movie on Netflix in both the US and Canada.
This movie, "Look who's back", may just change your mind. It envisages The Fuhrer waking up in modern-day Berlin. As soon as he gets himself orientated he stumbles into a career as....a reality TV star. Things take off from there. It's hilarious and scary at the same time -- a bit like Trump, when you come to think about it. You can find the movie on Netflix in both the US and Canada.
Thursday, 21 April 2016
Another triumph for press freedom (not)
Two decades ago, Canadians were transfixed and horrified by the ghastly trial of Paul Bernardo and Karla Homolka. The couple were accused, and later convicted, of the murder (and a lot more besides) of two teenage girls in southern Ontario. Karla ratted out her husband in return for a reduced sentence: she received a 12-year jail term, while Paul was given a life sentence with no possibility of parole.
With a little time off for good behaviour, Karla was released in 2005. She took on a new identity, married the brother of one of her defense counsel, started a family and moved to the island of Guadeloupe. That should have been the last Canadians ever heard of her, which would have been an entirely good thing; but no, a "reporter" with nothing better to do tracked her down in the Caribbean and blew her cover, so she, her husband and her small family had to start all over again.
And now the media have done it again. It's emerged this week that Karla and her family have been living for at least a couple of years in the Montreal suburb of Chateauguay. The reputable media, the CBC among them, have apparently known this all along, but have kept quiet about it. Now that someone has blown the whistle, cue the usual panic. Neighbours are aghast that "such a person" is living in the area, with two of her kids (who may still be too young to know Karla's awful back-story) in the local grade school. People who had no idea she was even there are suddenly afraid of her and convinced that she can never be rehabilitated.
Most tasteless of all, TV cameramen filmed a couple of "reporters" doorstepping the family's residence. Nobody answered, but how would the conversation have gone if someone had? "Well Karla, or whatever you're calling yourself these days, I guess you're gonna have to move on again now, right? Har har."
People who pitch up on TV demanding "justice" in this case or that never really want that: it's vengeance they're after. Reporters who see fit to hound someone who paid the penalty the law imposed and is now, by all accounts, trying to build a normal life, simply enable that base sentiment. It's hard to feel too sorry for Karla herself -- she came over at trial as a cold and calculating type -- but you'd think that the media might take at least a couple of seconds to ponder what effect all this might have on the children. Alas, it seems that's too much to hope for.
UPDATE, 22 April: This Rosie DiManno column in today's Toronto Star strikes me as quite shameful. Rosie covered the Homolka trial back in the day, so she's seen a lot more of the appalling details than I have. Even so, the complete lack of any recognition that Homolka can change -- indeed, seems to have changed -- is inhumane.
With a little time off for good behaviour, Karla was released in 2005. She took on a new identity, married the brother of one of her defense counsel, started a family and moved to the island of Guadeloupe. That should have been the last Canadians ever heard of her, which would have been an entirely good thing; but no, a "reporter" with nothing better to do tracked her down in the Caribbean and blew her cover, so she, her husband and her small family had to start all over again.
And now the media have done it again. It's emerged this week that Karla and her family have been living for at least a couple of years in the Montreal suburb of Chateauguay. The reputable media, the CBC among them, have apparently known this all along, but have kept quiet about it. Now that someone has blown the whistle, cue the usual panic. Neighbours are aghast that "such a person" is living in the area, with two of her kids (who may still be too young to know Karla's awful back-story) in the local grade school. People who had no idea she was even there are suddenly afraid of her and convinced that she can never be rehabilitated.
Most tasteless of all, TV cameramen filmed a couple of "reporters" doorstepping the family's residence. Nobody answered, but how would the conversation have gone if someone had? "Well Karla, or whatever you're calling yourself these days, I guess you're gonna have to move on again now, right? Har har."
People who pitch up on TV demanding "justice" in this case or that never really want that: it's vengeance they're after. Reporters who see fit to hound someone who paid the penalty the law imposed and is now, by all accounts, trying to build a normal life, simply enable that base sentiment. It's hard to feel too sorry for Karla herself -- she came over at trial as a cold and calculating type -- but you'd think that the media might take at least a couple of seconds to ponder what effect all this might have on the children. Alas, it seems that's too much to hope for.
UPDATE, 22 April: This Rosie DiManno column in today's Toronto Star strikes me as quite shameful. Rosie covered the Homolka trial back in the day, so she's seen a lot more of the appalling details than I have. Even so, the complete lack of any recognition that Homolka can change -- indeed, seems to have changed -- is inhumane.
Tuesday, 19 April 2016
A better budget outlook
No real surprise here: Canada's Parliamentary Budget Officer, a sort-of-independent fiscal watchdog. believes that federal budget deficits in the next few years will be significantly lower than Finance Minister Bill Morneau projected in last month's budget. The PBO even believes that the budget will show a small surplus in the current (2015/16) fiscal year, rather than the deficit Morneau claims to expect. See? Those nice Tories were telling the truth all along.
Like just about everyone else who's taken the time to peek under the hood, the PBO sees a couple of key reasons why deficits will fall short of Morneau's projections. First, he (the PBO's name is Jean-Denis Frechette) expects GDP growth to be way higher than the miserable 0.4 percent per annum assumed in the budget. Second, the contingencies built in to the budget are huge, at C$ 6 billion per year. These contingencies originated in the Paul Martin budgets of the mid-1990s at $ 3 billion per year, but by the later years of the Harper government they had been pared back to just $ 1 billion per year, as the government desperately sought ways to meet its promise of a balanced budget by election time.
It's highly unlikely that Morneau is surprised about any of this. His spin on the PBO's report is to declare himself gratified that the watchdog agrees that the measures in the recent budget will boost GDP growth. The real question is what Morneau and his boss, Justin Trudeau, will choose to do if and when the data show the deficit coming in much lower than expected: bask in the glory of beating their fiscal targets, or take the opportunity to goose spending on their pet projects a little further? A mix of the two, most likely, but the more the Liberals opt for higher spending, the more likely it becomes that deficits will become entrenched for much longer than the life of the current parliament.
Like just about everyone else who's taken the time to peek under the hood, the PBO sees a couple of key reasons why deficits will fall short of Morneau's projections. First, he (the PBO's name is Jean-Denis Frechette) expects GDP growth to be way higher than the miserable 0.4 percent per annum assumed in the budget. Second, the contingencies built in to the budget are huge, at C$ 6 billion per year. These contingencies originated in the Paul Martin budgets of the mid-1990s at $ 3 billion per year, but by the later years of the Harper government they had been pared back to just $ 1 billion per year, as the government desperately sought ways to meet its promise of a balanced budget by election time.
It's highly unlikely that Morneau is surprised about any of this. His spin on the PBO's report is to declare himself gratified that the watchdog agrees that the measures in the recent budget will boost GDP growth. The real question is what Morneau and his boss, Justin Trudeau, will choose to do if and when the data show the deficit coming in much lower than expected: bask in the glory of beating their fiscal targets, or take the opportunity to goose spending on their pet projects a little further? A mix of the two, most likely, but the more the Liberals opt for higher spending, the more likely it becomes that deficits will become entrenched for much longer than the life of the current parliament.
Wednesday, 13 April 2016
Stephen Poloz, Keynesian
As expected, the Bank of Canada kept its key reference rate unchanged at 0.5 percent after today's policy meeting. The Bank also released its latest quarterly Monetary Policy Report. As Governor Stephen Poloz's remarks in tabling this report make clear, the Bank sees the recent Federal budget making a significant contribution to GDP growth in the current year and beyond.
Despite some strong data in recent days (see previous posts), the Bank remains uncertain over the underlying strength in the Canadian economy. Given the collapse in investment intentions in the resource sector (notably oil), it has lowered its estimate of the economy's potential growth rate (a slippery concept, it should be said) to just 1.5 percent per annum, from 1.8 percent previously. There are also signs that the Bank is already beginning to fret that the rebound in the exchange rate could soon start to have a deleterious effect on growth.
Given these negatives, the stimulus that the Bank sees coming from the fiscal side looms large. Indeed, the Bank expects this Keynesian stimulus will more than outweigh the three main headwinds facing the domestic economy -- weak resource investment and the strengthening dollar, as already noted, plus the latest downward revisions in the global growth outlook. As a result it has revised its short-term GDP growth outlook modestly higher, to 1.7 percent this year and 2.3 percent in 2017. These numbers are slightly above the recent IMF forecasts, and massively above the deliberately lowball forecasts used in the budget itself.
These growth numbers are above the potential growth rate as the Bank now sees it, which means that the so-called output gap (between actual and potential GDP) is likely to close somewhat sooner than previously expected. Even so, the Bank does not expect the output gap to disappear before the end of 2017. Unless the inflation rate surges unexpectedly (unlikely, but not impossible as the impact of the weak exchange rate continues to make itself felt) it appears that the Bank will feel comfortable keeping its policy settings as they are for at least one more year.
Lastly, a linguistic quibble. Gov Poloz states that the Bank does "a fulsome review" of Canada's economic potential every year. "Fulsome", a word usually found next to the word "praise", means "overblown and insincere". I don't think that's what the Guv meant; "thorough", perhaps? I'm seeing this particular piece of bad usage quite regularly in the media these days. Enough, already!
Despite some strong data in recent days (see previous posts), the Bank remains uncertain over the underlying strength in the Canadian economy. Given the collapse in investment intentions in the resource sector (notably oil), it has lowered its estimate of the economy's potential growth rate (a slippery concept, it should be said) to just 1.5 percent per annum, from 1.8 percent previously. There are also signs that the Bank is already beginning to fret that the rebound in the exchange rate could soon start to have a deleterious effect on growth.
Given these negatives, the stimulus that the Bank sees coming from the fiscal side looms large. Indeed, the Bank expects this Keynesian stimulus will more than outweigh the three main headwinds facing the domestic economy -- weak resource investment and the strengthening dollar, as already noted, plus the latest downward revisions in the global growth outlook. As a result it has revised its short-term GDP growth outlook modestly higher, to 1.7 percent this year and 2.3 percent in 2017. These numbers are slightly above the recent IMF forecasts, and massively above the deliberately lowball forecasts used in the budget itself.
These growth numbers are above the potential growth rate as the Bank now sees it, which means that the so-called output gap (between actual and potential GDP) is likely to close somewhat sooner than previously expected. Even so, the Bank does not expect the output gap to disappear before the end of 2017. Unless the inflation rate surges unexpectedly (unlikely, but not impossible as the impact of the weak exchange rate continues to make itself felt) it appears that the Bank will feel comfortable keeping its policy settings as they are for at least one more year.
Lastly, a linguistic quibble. Gov Poloz states that the Bank does "a fulsome review" of Canada's economic potential every year. "Fulsome", a word usually found next to the word "praise", means "overblown and insincere". I don't think that's what the Guv meant; "thorough", perhaps? I'm seeing this particular piece of bad usage quite regularly in the media these days. Enough, already!
Tuesday, 12 April 2016
IMF pessimism
Given the strong growth posted by the Canadian economy in January (GDP up 0.6 percent month-on-month), it's something of a surprise to find the IMF downgrading its growth expectations for the full year. The fund is now looking for GDP to grow only 1.5 percent this year -- barely above last year's 1.2 percent, when the media were full of talk of a "technical recession" -- with modest further acceleration to 1.9 percent in 2017.
Multinational bodies like the Fund are notorious for the slow process by which they produce their forecasts. It's very likely that this downgrade reflects the situation back at the start of the year, when oil prices were low, the Canadian dollar was at rock bottom and there was no sign that the "rebalancing" of the economy hoped for by the Bank of Canada was anywhere in sight.
What with the January growth number, strong March employment data and evidence of a recovery in manufacturing exports, things look rather different now. Certainly that's how the markets see things, with the Canadian dollar today trading north of 78 cents (US), its highest level in more than nine months.
All this sets the stage for the Bank of Canada's monthly rate setting meeting on Wednesday. We can expect Governor Poloz to offer his opinions on the recent Federal budget, which appears to take some of the weight off of monetary policy in terms of getting the economy onto a stronger growth track. Poloz is also likely to suggest, politely of course, that the government's ultra low growth forecast (just 0.4 percent per year) is almost certain to be overshot by a considerable margin. At the same time, he is likely to signal that rates will remain at current levels for the next year or so -- and the updated IMF forecast, if nothing else, gives him fresh justification for the Bank's cautious approach.
Multinational bodies like the Fund are notorious for the slow process by which they produce their forecasts. It's very likely that this downgrade reflects the situation back at the start of the year, when oil prices were low, the Canadian dollar was at rock bottom and there was no sign that the "rebalancing" of the economy hoped for by the Bank of Canada was anywhere in sight.
What with the January growth number, strong March employment data and evidence of a recovery in manufacturing exports, things look rather different now. Certainly that's how the markets see things, with the Canadian dollar today trading north of 78 cents (US), its highest level in more than nine months.
All this sets the stage for the Bank of Canada's monthly rate setting meeting on Wednesday. We can expect Governor Poloz to offer his opinions on the recent Federal budget, which appears to take some of the weight off of monetary policy in terms of getting the economy onto a stronger growth track. Poloz is also likely to suggest, politely of course, that the government's ultra low growth forecast (just 0.4 percent per year) is almost certain to be overshot by a considerable margin. At the same time, he is likely to signal that rates will remain at current levels for the next year or so -- and the updated IMF forecast, if nothing else, gives him fresh justification for the Bank's cautious approach.
Friday, 8 April 2016
Canada employment data for March: it's all good
Over the past week or two there have been a couple of statistical releases that seemed to suggest that the strong Canadian GDP data for January might prove to be a flash in the pan. Examples? The trade deficit balloooned in February as both exports and imports fell, and hiring plans in the resource sector turned sharply negative. Today, however, StatsCan redressed the balance with a labour force report for March that far exceeded expectations.
The Canadian economy added just less than 41,000 jobs in the month, against an analysts' consensus of just 10,000. All of the new jobs were in the private sector, as opposed to self-employment and the public sector, although the past volatility of the split between these categories means that the data need to be treated with some caution. Almost all of the jobs were full-time -- 35,000 out of the 41,000 total. There was job growth in provinces that have recently shown weakness, including Alberta, where 19,000 jobs were added in the month.
Year-on-year, employment has grown 0.7 percent, with quarter-to-quarter growth of 0.2 percent in each of the past three calendar quarters. What next? One indicator of possible continued job growth is that the increase in the number of hours worked in the past 12 months, at 1.2 percent, is comfortably in excess of the growth in employment. Employers routinely increase the hours of their existing workforce on the first signs of growing demand, only adding new positions when they are confident that their higher need for labour will be sustained. If the economy continues to move ahead slowly but steadily, as seems likely, the discrepancy between the growth in employment and hours should begin to narrow, supporting further job gains.
The Canadian dollar had weakened in recent days but has rebounded smartly in response to today's data. However, nothing here suggests that the Bank of Canada will be changing its policy stance for many months to come. Over at the Finance Ministry, meanwhile, new Minister Bill Morneau must be wondering how long his beginner's luck can continue.
The Canadian economy added just less than 41,000 jobs in the month, against an analysts' consensus of just 10,000. All of the new jobs were in the private sector, as opposed to self-employment and the public sector, although the past volatility of the split between these categories means that the data need to be treated with some caution. Almost all of the jobs were full-time -- 35,000 out of the 41,000 total. There was job growth in provinces that have recently shown weakness, including Alberta, where 19,000 jobs were added in the month.
Year-on-year, employment has grown 0.7 percent, with quarter-to-quarter growth of 0.2 percent in each of the past three calendar quarters. What next? One indicator of possible continued job growth is that the increase in the number of hours worked in the past 12 months, at 1.2 percent, is comfortably in excess of the growth in employment. Employers routinely increase the hours of their existing workforce on the first signs of growing demand, only adding new positions when they are confident that their higher need for labour will be sustained. If the economy continues to move ahead slowly but steadily, as seems likely, the discrepancy between the growth in employment and hours should begin to narrow, supporting further job gains.
The Canadian dollar had weakened in recent days but has rebounded smartly in response to today's data. However, nothing here suggests that the Bank of Canada will be changing its policy stance for many months to come. Over at the Finance Ministry, meanwhile, new Minister Bill Morneau must be wondering how long his beginner's luck can continue.
Wednesday, 6 April 2016
The "tax expenditure" conundrum
Amid all the Panama Papers angst about how much money offshore tax havens are draining from Treasuries around the world. this column by Thomas Walkom in today's Toronto Star provides useful perspective. As Walkom points out, the amount of revenue that Ottawa loses to Panama, the BVI and the rest is certainly dwarfed by the amount that it willingly foregoes in the form of targeted tax breaks domestically -- so-called "tax expenditures".
I don't recall hearing the term "tax expenditures" during my education. The first time I heard it may well have been in 1981 when, as Walkom recounts, Pierre Trudeau -- father of Canada's current PM -- tried to clean up the income tax code, only to retreat in the face of a huge outcry from the public. One right-wing commentator sourly noted that "tax expenditures" were just another way of saying "letting some favoured taxpayers keep more of their own money".
In the intervening decades, the number of tax breaks -- or loopholes, as Walkom prefers to call them -- has increased dramatically. The Harper Tories were particularly keen on targeting giveaways very precisely at their electoral base: that's how we got the bizarre children's textbook credit and exercise credit that Walkom mentions (and which have been swept away in the recent Liberal budget). Going over my tax return with an accountant just this week, I was reminded how many of these I benefit from, many simply because I am a senior. I get an income tax deduction for my property taxes; I can split my pension income with my spouse in order to reduce the tax burden (a right no longer available to younger Canadians); dividends and capital gains are treated more favourably than employment income, and so on and on.
The Liberal government may have declared its intention to review and reform the tax system, but it would be imprudent to expect that Justin Trudeau will have a whole lot more luck with this than his father did. Notionally, abolishing all tax expenditures would allow the Government both to increase its revenues and to provide a significant reduction in overall rates of corporate and personal income tax. However, the outcry would be just as great as it was back in 1981: taxpayers about to lose loopholes they have grown used to would very easily calculate how much they stand to lose, whereas the broad mass of taxpayers would find it difficult to calculate how much they might stand to gain from a couple of percentage point reduction in the overall tax rate. It's not hard to guess who would make the most noise.
Besides, it's difficult to gauge how committed an avowedly activist government like Trudeau's would really be to simplifying the tax system. Tax expenditures arise in part from public demand, but are in much greater measure the result of governments' conviction that they know best when it comes to deciding who gets what. The simplification of the child tax credit system referred to above is a good start, but it's very unlikely that this government or any other will have the intestinal fortitude to push through a true reform of Canada's tax system.
I don't recall hearing the term "tax expenditures" during my education. The first time I heard it may well have been in 1981 when, as Walkom recounts, Pierre Trudeau -- father of Canada's current PM -- tried to clean up the income tax code, only to retreat in the face of a huge outcry from the public. One right-wing commentator sourly noted that "tax expenditures" were just another way of saying "letting some favoured taxpayers keep more of their own money".
In the intervening decades, the number of tax breaks -- or loopholes, as Walkom prefers to call them -- has increased dramatically. The Harper Tories were particularly keen on targeting giveaways very precisely at their electoral base: that's how we got the bizarre children's textbook credit and exercise credit that Walkom mentions (and which have been swept away in the recent Liberal budget). Going over my tax return with an accountant just this week, I was reminded how many of these I benefit from, many simply because I am a senior. I get an income tax deduction for my property taxes; I can split my pension income with my spouse in order to reduce the tax burden (a right no longer available to younger Canadians); dividends and capital gains are treated more favourably than employment income, and so on and on.
The Liberal government may have declared its intention to review and reform the tax system, but it would be imprudent to expect that Justin Trudeau will have a whole lot more luck with this than his father did. Notionally, abolishing all tax expenditures would allow the Government both to increase its revenues and to provide a significant reduction in overall rates of corporate and personal income tax. However, the outcry would be just as great as it was back in 1981: taxpayers about to lose loopholes they have grown used to would very easily calculate how much they stand to lose, whereas the broad mass of taxpayers would find it difficult to calculate how much they might stand to gain from a couple of percentage point reduction in the overall tax rate. It's not hard to guess who would make the most noise.
Besides, it's difficult to gauge how committed an avowedly activist government like Trudeau's would really be to simplifying the tax system. Tax expenditures arise in part from public demand, but are in much greater measure the result of governments' conviction that they know best when it comes to deciding who gets what. The simplification of the child tax credit system referred to above is a good start, but it's very unlikely that this government or any other will have the intestinal fortitude to push through a true reform of Canada's tax system.
Subscribe to:
Posts (Atom)