A key qualification for landing a job at the Bank of Canada, it seems, is an unfailing sense of optimism. In 2009, the bank forecast the economy would grow 3.3 per cent in 2011. It grew 2.5 per cent. In 2011, it said the economy would grow 2.9 per cent in 2013. It will likely be just 1.6 per cent. Now it says the economy will grow 2.3 per cent next year. How likely is that? The bank has consistently viewed the economy through rose-coloured glasses in recent years, perhaps believing its low-interest-rate policy will eventually bear fruit. Rates have been held at one per cent for three years now. But the economy seems only to be getting worse.
It grew 0.3 per cent in August, Statistics Canada said last week—mostly attributed to a familiar crutch, the oil business. Elsewhere, things aren’t looking up. A new TD Bank report said corporate Canada is “in a slump,” with profits down 16 per cent from their post-recession peak in 2011. Some observers point out that Canada is still doing better than Europe and Japan. But so are most countries that aren’t in a recession, from South Africa and New Zealand to Equitorial Guinea and Guatemala. After breezing through the recession, Canada is back to old habits: hoping its fortunes (i.e., exports) will rise along with America’s comeback. But the U.S., too, is back in a rut. Last week, the Federal Reserve said it would continue with its $85-billion-a-month bond-buying stimulus program.
With the economy sputtering, Ottawa has meanwhile remained preoccupied with fiscal restraint and balancing the budget within two years. So, with neither low interest rates nor government spending providing a boost, the outcome seems predictable: Official growth forecasts will look nice, but will keep missing the mark.
The Good News
Sales of cars and trucks were up 10 per cent in Canada last month, with sales of pickup trucks leading the way. Honda said it was its best October performance in more than a decade.
America’s annual deficit fell to its lowest point since 2008, due to tax increases and spending cuts. But with more than $17 trillion in debt, it’s too early to celebrate.
The price of raw materials—everything from aluminum to gasoline— declined 1.5 per cent in September, the first drop since April. Canadian manufacturers need all the help they can get.
Amazon says it will start selling groceries and auto parts in Canada. The American retail invasion continues—online.
Tim Hortons is testing a new dark-roast coffee. Could it provide the jolt the economy needs? Nothing else seems to be working.
The Bad News
Consumer confidence took a nosedive following the U.S. government shutdown in October, hitting its lowest point in six months. It’s difficult to ensure the economy is humming when you can’t even keep the lights on.
Ottawa’s wireless policy grows more confusing by the day. Telus is being allowed to buy struggling upstart Public Mobile, but not cash-strapped Mobilicity. No wonder U.S. giant Verizon took a pass on Canada earlier this year.
Sluggish growth means the U.S. Fed will keep emergency interest rates in place and continue buying $85 billion worth of bonds a month. It’s an economic crisis that never seems to end.
Sears Canada is closing five of its stores, including its flagship downtown Toronto location. Meanwhile, in nearby Hamilton, U.S. Steel will permanently cease production at the plant formerly run by Stelco, which was first incorporated in 1910.
The trying economic times are about to become a lot more difficult to swallow. Morgan Stanley says the world is facing a massive wine shortage, with demand outstripping supply by the widest margin in more than 40 years.
Signs of the times
- A recent FAA decision will allow tablets and other electronic devices to be used on takeoff and landing on U.S. domestic flights (as long as wireless functions are turned off). Canada is considering similar rule changes. It means one fewer sanctuary from modern life. The upside? A boost in productivity.
- The hedge fund run by Wall Street titan Steven A. Cohen is reportedly close to a billion-dollar settlement deal, after the fund was indicted on fraud charges. The landmark fine would likely prevent Cohen from managing other people’s money.
- Traders are watching the Fed’s every move for clues as to when it will begin to unwind, or “taper,” its support for the U.S. economy. So, when a deer crashed into a window at a Federal Reserve building in Cincinnati, the Twitterverse lit up with theories, including, “Are deer afraid of tapers, too?”
- Barrick Gold, the world’s biggest gold miner, has halted construction on its troubled $8.5-billion Pascua-Lama project in South America. It’s yet another ominous sign for gold bugs, who have suffered a 20 per cent drop in prices so far this year.
By the numbers
$6.66 BlackBerry’s share price on Monday, following news that it is abandoning efforts to sell itself, and that Thorsten Heins will step down as CEO.
28 The percentage of Americans who believe China (not the U.S.) is the world’s dominant economic power, according to a recent poll by The Street.
$13.5 billion The cost of Suncor Energy’s proposed new Alberta oil-sands mine.
$42.6 billion The amount the world’s airlines will take in this year in baggage fees and other add-on charges, up 89 per cent from 2010, says a new report by the consultancy IdeaWorksCompany.
$100.2 billion—The market valuation of the Royal Bank of Canada—the first Canadian bank to break the $100-billion mark.