What’s Up Up North?

In the past I’ve referred to Canada as the best part of the North American economy. With a mix of high-tech, manufacturing, and natural resources including agriculture, timber, and oil – it still is one of the best parts. But to paraphrase Socrates’ response when someone called him the best of the Athenians – he didn’t know if that meant that he was the best of the best or not quite as bad as everyone else.

Canada to lead G7 in GDP growth in ’09: IMF – CBC News – 08 October 08

Canada will lead the other G7 countries in economic growth in 2009, a muted honour considering that the global economy should slow markedly, according to a new IMF study released Wednesday.

The International Monetary Fund said this country should see economic growth in the range of 1.2 per cent next year, less than half of what Canada experienced in 2007, but the best performance among Japan, the United States, Italy, France, Germany and the United Kingdom.

Still, Canada’s economy is not immune from the ongoing global financial collapse, said the international monetary think-tank….

RBC chops Canada GDP forecast – CBC News via Worthwhile Canadian Initiative – 08 October 08

Canada’s economy will grow at a slower-than-expected pace because of the escalating global financial crisis, says the Royal Bank of Canada in an updated forecast released Wednesday.

RBC now expects Canada’s gross domestic product to expand by a paltry 0.9 per cent in 2008, a 40 per cent reduction from the bank’s earlier prediction of 1.5 per cent growth.

“The dramatic worsening in financial markets in mid-September and the attendant credit tightening is expected to impede global growth for the remainder of this year and going into 2009,” says RBC”s chief economist Craig Wright in the report…

Financial insecurity may slow Toronto condo construction -  CBC News - 08 October 08

Some condominium developers in Toronto are starting to feel the effects of the global credit crunch, and analysts say that could put some projects in jeopardy.

A condo market analyst says 30 per cent of the 120 projects currently being marketed in Toronto are teetering because they can’t get financing.

Projects already being built don’t appear to be in any danger of grinding to a halt, said Jane Renwick, executive vice president of Urbanation, a condo consulting firm.

But Renwick is concerned about smaller projects that haven’t reached the construction phase…new kids on the block…could represent up to 30 per cent of the projects that are not under construction,” said Renwick.

Canada’s jobs juggernaut to hit wall: TD Bank – CBC News -07 October 08

Canada’s economy will only create 30,000 jobs in the next nine months, about one-third of the number created in the first eight months of 2008, according to a new study released by the TD Bank on Tuesday.

A softening Alberta economy plus flagging manufacturing in Canada’s heartland means that the once-robust Canadian job creation machine has run out of gas, said Beata Caranci, TD’s director of economic forecasting…But, with the housing market slowing, consumers cutting spending as the all-important Christmas season approaches, and momentum in the professional service area dying, these industries will not be able to sustain much job creation in 2009, Caranci said…Alberta is already showing signs of slowing, with only 13,000 new jobs created in the January to August period this year compared to 58,000 for the same period a year earlier…

Sales of Canada Savings Bonds delayed to Friday amid market chaos – CBC News – 07 October 08

Sales of one of the country’s favourite investments, Canada Savings Bonds, will open Friday after Monday’s scheduled start was delayed amid worldwide turmoil in credit markets.

The bonds, a Canadian tradition since 1946, are backed by the government and promoted as a foolproof way for small investors to save. They are put on sale each fall….Earlier in the day, Finance Minister Jim Flaherty said he hoped to have them on sale Wednesday…’This is unprecedented as far as I know.’-Evelyn Jacks, Winnipeg-based tax expert…

UBS Strategist Predicts Recession In Canada By 2009 – Seeking Alpha – 06 October 08

Declining GDP in the fourth quarter of this year and the first quarter of 2009 will bring the Canadian economy into an official recession, UBS predicted Monday…

Scotia Capital is also forecasting Canadian and U.S. recessions, along with 100 basis point cuts from the Bank of Canada and U.S. Federal Reserve “that could come at any time.”…”It is not always the case that when the U.S. catches a cold, Canada gets pneumonia,” he added, predicting that consumer sentiment should hold up better…As a result, the strategist said the economic risk is lower in Canada and there is room to take on counter-cyclical initiatives. UBS expects the Bank of Canada to lower its overnight rate target from 3% to 2% by the end of the first quarter and sees the loonie falling to around $0.91.

Nonetheless, the Canadian economic outlook has been cut from 1.8% to 0.4% next year. UBS also cut its 2009 U.S. growth target from 1.2% to 0.3% and global growth from 2.8% to 2.2%.

It reduced its oil WTI price forecast from $120 per barrel to $105 and expects other commodities to be 5% to 30% below 2008 levels.

Canada heading for recession, say economists – CBS News - 06 October 08

Canada is headed into a worse recession than anyone expected, one that could last until almost 2010, said the country’s top economists on Monday…Don Drummond, chief economist and senior vice-president for the TD Bank Financial Group, expects the economy to shrink for more than a year before starting to recover…

“At this point, if this kind of volatility keeps up, I think we’re looking at a much more serious downturn than a mild recession that most of us are talking about,” said Doug Porter, with BMO Capital Markets, at a meeting of senior economists in Toronto…

TD Bank’s Don Drummond said he sees the economy shrinking until late 2009 and then only gradually recovering…

Canadian housing prices have begun to slide as well, although the country will not face a home sector deterioration along the lines of what occurred in the United States, Scotiabank said.

Finally, exports to the United States will dry up as American demand for Canadian products evaporates, economists said…

Scotiabank currently has the Canadian economy growing 0.7 per cent this year and 1.4 per cent in 2009. This prediction, however, was made on Sept. 9, before the full force of the Wall Street financial meltdown was evident.

BMO Capital Markets expects the economy to grow 1.7 per cent in the July-to-September period but then contracting by 0.4 per cent in the final three months of the year.

Along with Scotiabank, BMO has Canada’s economy growing in the 2009, up 1.0 per cent.

Canadian Market Indicators Flashing Bottom Signals – Seeking Alpha – Larry MacDonald – 06 October 08

Canadian investors have pushed the panic button too. An estimated $4.5 billion was pulled from Canadian mutual funds in September – a massive outflow that sweeps far beyond the previous redemptions peak of $1.7 billion in April, 2003…

It’s important to look at the data carefully and to consider the current context. First, approximately half of the September outflows were from money market funds – so the flight from stocks was actually closer to $2.25 billion. That still beats the record, but by a smaller margin.

Second, a number of fund companies reported net inflows of money. As Som Seif, of Claymore Investments points out, this had a lot to do with new product offerings, i.e. segregated mutual funds used in variable annuities such as Manulife Financial’s IncomePlus…

Thus, we may indeed be getting near the point of maximum pessimism and the bear market’s bottom. A caveat, though, is the once-in-a-lifetime nature of the current financial crisis: A “five standard deviation event” in which traditional signals and yardsticks may no longer be reliable guides.

Why Canada may dodge U.S. crisis – The Star – David Olive 04 October 08

It’s an economic Pearl Harbor.

That’s how Warren Buffett, the legendary stock picker and world’s second-wealthiest man, describes the current credit crisis and the threat it holds of triggering a global recession…

What do these harrowing events mean for Canada, in such close proximity to the epicentre of the crisis? We’re in surprisingly good shape, all things considered…

Yet the wider economy is doing well. The well-publicized loss of manufacturing jobs, concentrated in Central Canada, amounts to 353,000 jobs since 2002. But in that same six-year period, Canada generated a net increase of 1.5 million new jobs, and not only in relatively low-paying tourism and food service sectors but professional, scientific and technical services as well as the health-care and social-assistance fields. Average hourly wages were $20.41 in 2007, up from $17.66 in 2002. And unemployment figures for Canada and the United States are going in opposite directions. The Canadian jobless rate for last month was 6.1 per cent, down from 7.5 per cent in 2002. The U.S. unemployment rate also is 6.1 per cent, but that’s up from the 4 per cent to 5 per cent range earlier in the decade.

After eight years of rising prices, the Canadian housing market is in the midst of a soft landing. Though Canadian home prices have retreated in various areas, the declines are a far cry from the 30 per cent to 70 per cent drops experienced by homeowners in the hardest-hit U.S. markets, notably California, Florida and the Midwest, where foreclosures resulting from defaults on subprime loans are most highly concentrated and have created a glut of unsold homes.

The Canadian banking sector is conspicuously sound, having for the most part resisted the packages of U.S. subprime loans offered to them at the top of the U.S. housing market, and have resulted in more than $40 billion in writeoffs at Swiss banking giant UBS AG alone. Canada has stricter rules on capital ratios that banks must maintain and a higher level of regulatory scrutiny of banking than the United States.

Last year, as a credit crunch first became apparent in the United States, Canadian banking regulators asked two major Canadian banks to shore up their balance sheets, which they did. Canadian Imperial Bank of Commerce, believed to be one of the two (Department of Finance officials don’t identify the banks they’re working with), was successful in raising $2.9 billion in new capital earlier this year, after writing off more than $6.8 billion on U.S. subprime loans on its books over the past three quarters. CIBC further strengthened its reserves this week with a $1 billion injection of capital from New York private equity giant Cerberus Capital Management.

While U.S. bank stocks are nosediving, Canadian bank shares, while modestly down, have held their own so well that most of the Big Five banks are fending off rumours they will swoop into the U.S. market to snap up ailing American banks and other financial institutions.

Household debt is high in both Canada and the U.S., but a stronger job market here makes that less of a worry in Canada. Both countries also boast relatively strong corporate balance sheets, since companies opted in the boom years to finance expansion where possible from retained earnings rather than bank loans.

America’s challenge is getting through an extraordinarily difficult time in which investors increasingly lack confidence even in blue-chip stocks, and financial institutions have so little trust in each other they are reluctant even to make the overnight loans among themselves that keep adequate liquidity flowing through the system.

Canada will be relatively cushioned as it makes the transition through a rough period of economic weakness in our largest trading partner. Homeowners haven’t lost 25 per cent and 50 per cent of their home equity. Employment is stable or growing in most sectors, export-oriented manufacturing and forestry being notable exceptions. And as the only G-8 nation with successive federal budget surpluses over the past decade, Canada is much better equipped to provide fiscal stimulus if the economy does stumble badly.

On the other side of the current malaise is a likely resumption in rising global demand for Canadian commodities, with some forecasters anticipating a rebound in crude oil, for instance, to as much as $150 a barrel a few years’ hence. Asian and South Asian demand for infrastructure materials and engineers – which has shown resilience even in these difficult times – is forecast to resume significant growth as early as 2010…

Canada could face housing woes, Merrill warns – The Globe and Mail – via The Dominion - 24 September 08

Merrill Lynch Canada Inc. is challenging the prevailing view that Canada’s housing and mortgage markets are more stable than their U.S. counterparts, warning that households in this country are so indebted that it’s only a matter of time before we see a major downturn here as well.

In a report issued Wednesday, Merrill Lynch Canada economists said many Canadian households are more financially overextended than their counterparts in the United States or Britain…The Merrill Lynch Canada report by economists David Wolf and Carolyn Kwan acknowledges that the analysis is more pessimistic than the prevailing view…

Many economists have said repeatedly that Canada’s housing and banking sectors are much more stable than their U.S. counterparts and is unlikely to crash – since it didn’t spike in recent years because of many differences between the two countries…

Benjamin Tal, an economist with CIBC who has been following closely the ups and downs of the housing industry, said Wednesday he sees no “trigger” threatening Canada’s housing and mortgage market…

However, Merrill Lynch Canada…said Canadians should be wary. Household net borrowing in Canada amounted to 6.3 per cent of disposable income in 2007 – meaning they’re carrying more debt than households in the United Kingdom and not far off the peak U.S. shortfall in 2005 – just before the subprime mortgage crisis erupted…

The prevailing view, however, is that Canada’s lenders have issued few of the type of subprime mortgages that sparked the U.S. crisis, which is continuing to ripple through the financial system.

In addition, many observers argue that Canadian residential properties are, by and large, not overvalued – considering the strength of regional economies in resource-rich provinces.

Mr. Tal agreed there’s a high level of debt in Canada but added “the distribution of debt in Canada is much better than in the U.S.”

“There was really a lot of high-risk debt in the U.S. You don’t see this in Canada,” he said.

Gregory Klump, chief economist with Canadian Mortgage and Housing Corp., said there would need to be a spike in interest rates or massive layoffs before the housing market would take a tumble Right now, he said, “we have a stable labour market” and interest rates are low.

“There’s no distress sales in Canada, not like in the States.”

In Calgary and Edmonton, where house prices have been falling recently after reaching astronomical heights, he said, “the market is beginning to stabilize.”

Mr. Klump said Merrill’s warning on Wednesday “is consistent with the viewpoint they’ve had for the last year, but it hasn’t happened.”

James Marple, an economist at Toronto-Dominion Bank, said housing affordability – which reflects not only the purchase price but cost of ownership, including debt payments – has not declined in this country like it has in the United States.

As well, Canada has not had the “kind of glut of housing supply across the country” that would lead to the massive correction experienced in the U.S., Mr. Marple said.

BMO economist Douglas Porter said “it’s quite a stretch” for Merrill Lynch to say that the Canadian market is going to face the same kind of deep downturn as the U.S.

However, he said, there are legitimate reasons “to be cautious on the housing market outlook” in this country.

“I don’t think it’s going too far out on a limb to say that prices could recede a bit in many cities” but nothing like in the United States.

Home sales drop 42 per cent in Greater Vancouver – CBC News – 02 October 08

Real Estate sales and prices continue to drop in Metro Vancouver. Real Estate sales and prices continue to drop in Metro Vancouver. (CBC)

The Real Estate Board of Greater Vancouver says the number of residential property sales declined 42.9 per cent in September from a year earlier…

The number of new listings continued to rise, up 28.8 per cent from the same month last year…

Prices also continued a downward trend after hitting a peak earlier this year, according to the report…since May of this year, the benchmark price for a detached property in Greater Vancouver has declined 5.8 per cent…The benchmark price of an apartment property declined 0.7 per cent from September 2007 to $369,062. And since May 2008, the benchmark price for an apartment in Greater Vancouver has declined 5.2 per cent…For an attached property, the benchmark price has declined three per cent since May…