• TSX -47.15 closed lower for a second straight day as materials and energy shares were hit hard by slipping commodity prices and a soft earnings report from U.S. aluminum giant Alcoa. The report raised fears of a sluggish economic recovery and commodity prices weakened. Canadian economic figures however, reinforced the view that growth is accelerating in this country. Trade data for February was stronger than expected and new-home prices rose in the same month.
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Canadian firms expect gradual recovery
BY JULIAN BELTRAME
OTTAWA - The Bank of Canada’s spring survey of businesses is providing further evidence that the economic recovery is taking hold, but that key decision-makers expect improvements will be gradual rather than robust.
Canadian firms are saying they expect sales to increase modestly over the next year. They also plan to hire more workers and invest more on new equipment and machinery.
But most also report that they are operating below their capacity and expect to do so for at least the next six months.
“Firms expect a modest increase in sales volumes following declines over the past year,” the central bank said today.
“Firms reported that sales expectations are supported by the U.S. general economic recovery, an improving near-term U.S. economic outlook, and, in a growing number of cases, their own initiatives to reposition themselves for growth.”
The quarterly survey of 100 key firms is also often cited by the central bank as a factor in its forecasts and decisions about interest rates.
The latest result, while positive, is also muted enough that it is unlikely to put additional pressures on the Bank of Canada to move more quickly than it otherwise would have on interest rates.
Recently, some economists have predicted the central bank would start raising interest rates at the June 1 scheduled announcement date, about a month-and-a-half before governor Mark Carney’s conditional commitment.
With the economy growing at an expected six per cent clip in the first quarter, on the heels of a five per cent advance in the last three months of 2009, there is no longer any need to keep the policy rate at the emergency level of 0.25 per cent, the analysts argue.
But business leaders seem to be less certain that the economy will continue to speed ahead at such a accelerated rate.
On many of the indicators surveyed, the firms are telling the bank that their views have not changed in the past three months and in some cases, they have become more cautious.
While 64 per cent of firms expect their sales volume to rise in the next 12 months over the previous year, the balance of opinion on this question was slightly lower than during the winter survey.
As well, the balance of opinion on hiring intentions is high, but still slightly lower than it was in the winter survey.
The central bank says 50 per cent of firms say they intend to hire more workers in the next year than they did in the previous 12 months.
More firms expect inflation to be two to three per cent range over the next two years, but nearly all still anticipate prices to remain well anchored within the central bank’s range of one to three per cent annual inflation range.
A separate survey of senior loan officers showed that over all lending conditions are improving, but the firms themselves say they are about the same as they were three months ago.
More critically, “many firms noted that access to credit remains more restrictive than it was prior to the intensification of the financial crisis in September 2008,” the bank said.
The most positive of the indicators was on firms’ investment expectations. Forty-three per cent of firms said they expected to increase their spending on machinery and equipment over the next 12 months, with only 21 per cent saying it will likely be lower.
“Rather than just repairing or replacing existing equipment, firms are increasingly focusing investment spending on expansion — often into new markets or product lines — or on improving efficiency. This is particularly the case among manufacturers,” the bank said.
The Canadian Press http://news.therecord.com/Business/article/697177
Pain in Australia is a peek at what's to come Published on Tuesday, Apr. 13, 2010 The Globe and Mail Report on Business
berman@globeandmail.com
For a glimpse of what the future may feel like in the Great White North, look Down Under.
Faced with a jumping housing market
The goal is to unwind emergency cuts and return borrowing costs to the historical average, and fast. Last week Mr. Stevens tightened again, his fifth quarter point move in seven months, leaving home builders furious and retailers begging for mercy because customers are disappearing.
The rapid rate increases have made the Australian central bank chief a controversial figure in a world where most central banks have been standing pat. He is a hero to many who believe that other bankers are leaving rates too low too long and courting inflation. Doubters believe he risks overdoing it and the Australian economy will suffer.
With Bank of Canada
Thanks to the $250 (Australian) a month in interest that the Stevens rate increases now are costing the average homeowner on a $300,000 mortgage, Australia's roaring housing market is finally showing signs of slowing. Building permits are suddenly unexpectedly soft, price gains are tapering off and home loan approvals have fallen for five straight months. Some analysts are raising the prospect of an outright price decline.
At the same time, even though the country is enjoying a job boom, increasingly strapped consumers are apparently dealing with higher interest payments by cutting back on spending. Retail sales fell in two of the three most recent months.
These are all the aftershocks of a central bank dealing with the difficult transition from easy money that was pushed into the economy to cope with a perceived emergency to a post-crisis world where rates more truly reflect the realities of the business cycle.
The Reserve Bank of Australia is "reaching the point at which the central bank does make tradeoffs between economic growth and its desire to contain inflation pressures, and at the point where those tradeoffs where those tradeoffs become quite fine judgment calls," said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce's investment banking arm.
"It's premature to say they've overdone it because they intend to sacrifice growth at this point in the cycle," he added.
At some point, Mr. Carney will face the same tradeoff.
There are some fundamental differences between the two countries' economies that mean it will be a while before Canada gets to the same turning point that Australia is now reaching.
While many people view the countries as very similar, Australia has a big head start economically. It skirted the global recession, its housing market didn't drop as much in the worst of the crisis and the jobs picture is much brighter. The Australian unemployment rate is 5.3 per cent, compared to 8.2 per cent in Canada.
The other big difference is geography - Australia exports more to Asia, which has been fuelling the global recovery, while Canada remains heavily dependent on the hard-hit U.S.
Still, once Canadian rates start rising, they are likely to go up reasonably quickly. The Bank of Canada has a chance to hike at a scheduled rate-setting date next week, but most analysts expect the first increase closer to mid-year. After that, even the most dovish forecasters like Mr. Shenfeld lay out a scenario where Canadian rates climb over the next year and a half by much more than they have in Australia so far.
CIBC anticipates the Bank of Canada will take its benchmark rate up from the current 0.25 per cent to 2.5 per cent by the end of 2011. At the other end of the spectrum, Toronto-Dominion bank expects 3.25 per cent and Royal Bank of Canada forecasts 3.5 per cent.
At that point, as consumers feel the squeeze, having a thick skin becomes a key part of central banking. Mr. Stevens is blunt and seemingly unrepentant about the effects of his increases, judging by his recent statements. The hurt of higher rates is just part of economic life, so better to get it over with.
"If we wait too long do we end up having to do more of that (raising rates), and those people would actually end up in a lot more pain."
http://www.theglobeandmail.com/report-on-business/pain-in-australia-is-a-peek-at-whats-to-come/article1532435/
