Canada GDP: small bounce, won't last

Huzzah, a post that's not about Brexit (well, except for a little bit at the end).

After two months of marginal decline, Canada's GDP edged up by 0.1 percent in April, in line with analysts' expectations. Manufacturing output was 0.4 percent higher in the month, led by transportation equipment, while the ailing energy sector saw a 2.4 percent decline.  Arts and recreation spending plummeted almost 4 percent in the month, though I'm not sure what to make of the suggestion (from BMo's Doug Porter in the linked article) that this was a result of the failure of any Canadian team to reach the hockey playoffs. You might think that having a large chunk of the working-age male population chugging beer on the couch for a month would have been a drag on GDP, but that's not how Porter sees it.

If Porter's right, then the hockey-inspired impact on GDP will be repeated in May -- and indeed into early June, when the interminable playoffs finally ended.  However, that wasn't the main factor holding back growth in May.  That month was, of course, marked by the enormous wildfires in Fort McMurray, which knocked a large chunk of Canada's oilsands sector offline for several weeks. That cataclysmic event, now thankfully over, will certainly have pushed GDP into negative territory for the month, and with production only gradually returning to normal over the past month, will likely ensure at best a flat result for June also.

After a strong bounce in January, GDP fell in both February and March, meaning the economy entered Q2 in a phase of relative weakness. With only marginal growth in April and likely negative results to come for May and June, it is very likely that GDP for the whole of Q2 will show a decline.  After that, however, the full resumption of activity in the oilsands, plus the reconstruction efforts in Fort McMurray itself, should push growth back onto a moderately faster track.

As I warned you at the beginning, just a bit about Brexit. Canadian policymakers are expressing confidence that the economy will not be greatly affected by the UK's decision.  Given the very modest level of UK-Canada trade, it is indeed likely that the direct impact will be minimal. Things could get a whole lot more serious if the uncertainty the UK has unleashed starts to take a toll on the global financial system; the stock price weakness for financial institutions, including Canadian banks, is reflective of that.

Some of the bigger Canadian pension funds may also have been losing sleep over Brexit.  They have been enthusiastic buyers of UK infrastructure assets in recent years.  Right now they're just looking at a nasty FX loss. but if Brexit causes the whole UK economy to veer into the ditch, things could get a whole lot worse than that.  But that's a story for another post.

Boris loses his bottle

Nice one, Boris Johnson!  After spearheading the drive for Brexit, London's former Mayor has wimped out (or "lost his bottle" as the Brits would say) and won't be running for the leadership of the Tory party, and the Prime Ministership that comes along with it.  Brexit may be Boris's mess, but he's not going to try to clear it up.

So, it looks as if Britain will have a strong woman at 10 Downing Street before very long. The bookies' favourite is Theresa May, an experienced Cabinet Minister who supported the Remain side but still seems well regarded in the Party. Or perhaps it will be Sarah Vine, who is very evidently pulling the strings controlling her charisma-challenged husband, Michael Gove, whose decision to enter the race seems to have forced BoJo out of the running.

Gove fought for the Leave campaign at Johnson's side, though it's unlikely that they're on speaking terms today. Assuming the final two candidates in the race are Gove/Vine and May, the leadership vote will be a virtual rerun of the Brexit referendum. Just what Britain needs right now.

Surprise exit, part 2

It's not been a good week for Shakespeare's "sceptre'd isle". Just days after the Brexit vote, England crashed out of the Euro 16 soccer championship today with a 2-1 defeat by....Iceland. The shell-shocked TV commentators described it as England's worst result since a 1950 loss, by 1-0, to the United States, at the 1950 World Cup in Uruguay.  That result was a fluke -- England dominated the play but somehow failed to score; in contrast, the only surprise in today's result was that Iceland didn't score more.

Like David Cameron, the England manager Roy Hodgson barely waited for the din of battle to abate before quitting his post. Like the country itself, the England football team must now scramble to find a new boss before hostilities/negotiations resume in earnest in the early fall.

Tell me if I'm stretching things here, but it seems to me there's one common factor between the Brexit outcome and today's soccer result: geezers. Analyses of the Brexit vote show that it was older voters who led the charge to Leave; younger voters, who now stand to be the victims of their elders' irresponsibility, voted Remain.  And Roy Hodgson?  He's 68 years old, which you'd think might make it difficult for him to relate to his team. The substitute he sent on in the dying minutes of the game, Marcus Rashford, is a full half-century younger than Hodgson.

What a crew we baby boomers are! We've always had our own way, and as events in the UK this past few days show, we have no intention of going gentle into that good night. What toll that's going to take on younger generations, time alone will tell.  

They bin and gorn and done it!*

Anyone remember David Cameron's mantra at the height of the financial crisis?  "We're all in this together", he liked to say. Now this same Great Unifier, through his spineless decision to allow a referendum on the UK's membership of the EU, has divided his country right down the middle. The consequences of this will reverberate for years, not just in the UK but across Europe and around the world.

Ahead of last year's election, Cameron was concerned about losing votes at the right fringes of his party to the anti-EU, anti-immigrant UK Independence Party, UKIP.  Rather than stand up to UKIP and to the knuckle-dragging xenophobes in his own party, Cameron came up with the wizard wheeze of promising an in/out referendum on EU membership. It worked at the time -- Cameron's Tories won a majority -- but now the reckoning must be paid.

Truth to tell, the referendum was never really about Brexit as such -- it was a battle for the future of the Tory Party itself. The clearest evidence of this is that before the formal campaigning began in February, Cameron had been openly musing about the possibility of leaving the EU, whereas Boris Johnson, who became the figurehead of the Leave campaign, wrote a lengthy article in the press arguing that the UK would be better off to remain part of the bloc. No high principles were at stake here -- just a raw lust for power.

So, what's next?

In terms of the political fallout, Cameron has already impaled himself on his sword, announcing he will quit by October.  His Chancellor, George Osborne, has been at his side in the Remain campaign, so any chance he may have had of succeeding Cameron has presumably vanished. It looks like a coronation for the clownish but ruthless Boris Johnson, though the other prominent figure in the Leave campaign, the preternaturally dull Michael Gove, may also think he has a claim on the job.

Either way, this will mark a sharp swerve to the right for British politics, which is almost certainly not what the majority of Leave voters (especially the Labour supporters) were seeking when they cast their ballots yesterday. There have even been suggestions that the eminence grise of the Leave campaign, UKIP leader Nigel Farage -- a loathsome piss-artist -- may be elevated to the peerage.

Then there's Scotland.  While in the UK earlier this month, I watched a televised debate on Brexit in which by far the most impressive performer was Nicola Sturgeon, Scotland's First Minister.  The Scots are much more pro-European than the English -- think of the Auld Alliance -- and voted Remain in the referendum. Ms Sturgeon has already indicated that another independence referendum is likely, in the hope of allowing Scotland to remain in the EU.

As for the economic impact of the vote, the damage will not take long to emerge. Brits pitching up on the Costa Brava this weekend will be shocked to find how much less their money is worth than it was just two days ago, as Sterling has collapsed to levels not seen since the mid-1980s.

More seriously, business investment is likely to fall sharply and for a prolonged period of time. Markets hate uncertainty above all else, and the referendum result has created a situation that is quite literally without precedent.  Why would any company thinking of investing in Europe choose the UK now, when the future of the country's tariff-free access to European markets has been cast into doubt?  Bank of England Governor Mark Carney (wish you were back in Ottawa, Mark??) says the Bank stands ready to provide liquidity to keep markets functioning, and a rate cut is quite possible.  But will any of that help?  The cost and availability of money is hardly the issue right now.

The Leave campaign have argued that they will be able to negotiate deals with the EU to maintain Britain's access to European markets. Maybe they will, but as the UK has to give two years' notice of its intention to leave, and as that notice will probably not be given until Cameron's successor is in place, a prolonged period of uncertainty and business paralysis is guaranteed.

And that's the best case.  In truth, it is very likely that the EU will drive a hard bargain with the UK, partly out of hurt feelings but also because it will need to send a clear signal to any other countries pondering an exit vote that the process will be painful in the extreme. A particularly tough line may be come from Paris, where politicians are no doubt thinking that General de Gaulle was right all along -- perfidious Albion should never have been allowed into the club.

It's hard to think of a more stupid, self-destructive decision that has ever been taken by democratic vote. If it was only the Brits that had to live with the impact of their folly, that might be fair enough, but many people with no real connection to the UK are likely to get hurt as the consequences unfold in the coming months and years. For David Cameron, the man who set this debacle in motion for crass political purposes, the judgment of history will surely be very harsh indeed.

* Tr: The Brits have voted to leave the EU

Words may never hurt me??

The biggest shock about the murder of Jo Cox, the young British Labour Party MP, may be that something similar hasn't already happened in the United States.  The Trump campaign has been notable for reacting with violence against anyone who has dared to express dissent during one of The Donald's Nuremberg-style rallies. Trump at one point threatened violent revenge against the Bernie Sanders campaign, which he appeared to see as the source of the most vocal opposition to him.  He has even mused knowingly about the possibility of his own supporters rioting at the Republican Convention in Cleveland next month if things don't seem to be going their way.

The tone of the Brexit debate in the UK has been less openly incendiary, but the ad hominem rhetoric has heated up as the campaign has moved along, and the openly anti-immigrant stance of the pro-Brexit side has awakened uncomfortable memories of the late Enoch Powell's prediction of "rivers of blood" in the event that immigration levels remained high. The referendum campaign has put on hold out of respect for Ms Cox; while the accused murderer seems to be more than slightly unhinged, you'd hope that all sides in the debate are using the lull to ask themselves whether he would have been inspired to do what he did if they had maintained a more civilized tone.

We have moved into an era of particularly strident and uncompromising political rhetoric in recent years, much of it emanating from the right side of the spectrum. Think of the obstructionism of the Republican Party throughout the Obama Presidency; the rise of UKIP in Britain; the success of the Front National in France; the resurgence of ultra-right political parties in Austria, Hungary and elsewhere in eastern Europe.  The lesson that politicians should (but probably won't) take from Jo Cox's death is this: when you abandon rational debate and start stirring up people's baser instincts, you can't control what may happen next.

BoJo, The Donald and der Fuhrer

A week spent in the UK in the run-up to the "Brexit" referendum proved to be a disheartening experience.  It was hard to avoid making comparisons between the tactics of the Leave campaign and those Donald Trump has used to secure the Republican presidential nomination. 

Trump has based his campaign on a toxic mix of bluster,  insults and racism,  but above all on creating his own "truth" by denying or simply ignoring any inconvenient facts. So too with the Leave campaign,  spearheaded by the equally improbable Boris Johnson -- BoJo, as he is universally known. It's a severe indictment of the media that they've both gotten away with it so easily.

The likely economic consequences of a Brexit are a matter of little debate, at least among those who have taken the trouble to consider them carefully. The UK stands to suffer a loss of GDP in both the short and the long term, along with a deterioration in its fiscal position and a weakening in its exchange rate,  if it votes to leave the EU. The IMF has said this; so has the Bank of England; so have UK business organizations,  labor unions and any number of consultants. 

The Leave campaign's response to all of this has been,  first,  to accuse the Remain campaign of stoking up fear.  In truth,  it's hard to see why that would be unreasonable: if you're about to take a leap into the void,  which a Brexit would undeniably be,  fear is surely not an irrational emotion. Second,  the Leave spokespersons claim that the studies warning of the dire consequences of Brexit are "unbalanced" -- but have entirely failed to produce any more "balanced" reports of their own. 

With the economic case for leaving evidently hopeless,  it was inevitable that the Leave campaign would seek an alternative.  It was obvious very early in the campaign what that alternative would be. The formal campaign was but days old when Johnson saw fit to compare the EU to Hitler,  both of them motivated only by a lust to control the entire Continent.  After that it was straight downhill,  with the Leave campaign focusing almost exclusively on stirring up British fears of immigration,  which are never far below the surface.

There are two ironies here. First and foremost,  the immigrants that most Brits are uncomfortable with are undoubtedly those with swarthier complexions,  but the inflow of such folk has almost nothing to do with the EU; rather, it's the consequence of Empire and Commonwealth,  two things of which the Brexit crowd are in fact inordinately fond. Second, it might be worth recalling that BoJo is himself an immigrant: he was born in New York City and is of Eastern European descent.

Perhaps the most depressing thing of all is this: there's a sharp divide in generational attitudes to Brexit,  if the polls are to be believed.  Younger voters,  who will be saddled with the consequences either way,  strongly favour remaining in the EU. However,  they may well be outvoted by their elders,  who seem to hanker for a simpler, whiter Britain that never really existed and certainly can't be recreated now. As in this fall's Presidential vote, there seems every possibility that the old are going to screw things up for the young.