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'The sky is not falling,' says BoC governor

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mises

Joined: 05 Nov 2007
Location: retired

Posted: Thu Oct 23, 2008 9:56 am Post subject: 'The sky is not falling,' says BoC governor

Quote:

The Bank of Canada believes Canada can avoid a recession this year and next, despite the protracted three-quarter recession it forecasts for the U.S. economy into 2009, a "mild" global recession, and "the deepest, broadest and most persistent financial crisis" the world has faced in decades.

Mark Carney, the Bank of Canada governor, said instead that the country is headed for "sluggish growth for the next few quarters. That's the best description of it."

In its most-recent monetary policy update, released Thursday, the central bank forecasts real gross domestic product will expand 0.8% in the third quarter, followed by a contraction of 0.4% in the fourth quarter. Growth is expected to be flat in the first quarter of 2009 and to pick up to 0.8% in the second quarter.

Two successive quarters of contracting activity is technically considered a recession.

The bank believes Canada is starting from a better position of strength than many other countries going into the downturn, with a stronger labour market and better household and corporate balance sheets providing some support.

The "sky is not falling, the sky is still there," Mr. Carney said at a news conference after the document's release. "We do not have the imbalances in our economy that other economies have going into this time of difficulty."

The governor added the country's sound, well-capitalized financial system gives Canada an advantage. "We don't have a system that we need to repair," Mr. Carney said. "Unfortunately, other jurisdictions effectively have to repair many of their key financial institutions."

Still, it forecasts the economy will not do much better than flatline over the next couple of quarters as the global credit crisis will resolve slowly, putting the economy under strain.

Despite the "healthy" position of Canadian financial institutions, the intensification of the global financial crisis has led to a "substantial" tightening of credit conditions in Canada, the bank's policy update said.

"Given the high degree of volatility and risk aversion in recent weeks, there is considerable uncertainty around any assessment of current credit conditions in Canada," the bank said. "In particular, it is difficult to measure the non-price factors that may limit the availability of credit."

Credit spreads for financial institutions, as measured by the difference between a weighted average of borrowing rates across the term structure and the expected overnight rate, spiked to around 200 basis points in early October.

While strong actions taken by central banks and governments to support financial institutions have lowered those spreads, the bank said they are likely only to recede slowly as confidence is gradually rebuilt.

Effective borrowing rates for financial institutions have, in fact, eased somewhat since August, thanks to the 225 basis points of cumulative interest rate cuts the bank has already implemented, the bank said.

"Globally you are starting to see some recovery in interbank [lending] markets," Mr. Carney told reporters. "In Canada, you are seeing a more marked recovery in those markets, as you would expect with a stronger system. And it is going to mean ... that the potential freezing of the financial system in Canada is not going to happen and life can continue as before."

Non-financial firms, meanwhile, have had difficulty getting access to both short-term and long-term markets, the bank's update said.

"Indeed, corporate debt and equity issuance have effectively stopped," it said.

The bank pointed out, however, that credit growth for Canadian households has slowed only slightly in recent months and there was little evidence terms or conditions have tightened significantly for household borrowers.

Still it sees growth of consumer spending receding after robust gains in recent years as real income declines with commodity prices, and household net worth takes a hit from sliding equity markets and a projected "modest" decline in house prices.

While it has been predicting a slowdown in housing activity and price gains for some time, the bank now says housing investment is declining more rapidly than it had expected. But it does not anticipate the same type of sharp housing contraction experienced by the United States.

The sharp decline in commodity prices has, like many, caught the Bank of Canada off-guard, and it is basing its projections on oil futures prices of US$81 to US$88 per barrel, though it projects a further 10% drop in non-energy commodity prices from current levels.

The bank has also revised down its estimate of Canada's potential output -- or the rate the economy can grow without generating inflation -- to 2.3% for 2008 and 2.4% in 2009.

While one of the main risks to its outlook was that full recovery would take longer than expected, there is now the chance that measures governments and central banks have taken to restore liquidity and confidence will improve prospects more rapidly.

For the year as a whole, the bank repeated its Tuesday forecast that growth will average just 0.6% in 2008 and 0.6% in 2009 before picking up speed to 3.4% in 2010.

While the big jump in growth forecast for 2010 might seem sharp, it is not unusual by historical standards to see economies start to gain steam quickly once the worst of a crisis has past.

Carney (who I think is extremely competent) is either high or relying on voodoo economics. The world is increasingly looking towards not just a "mild global recession" but a severe and very long one. Canada will not escape recession. Not with commodity prices.

Look to the goings on in Alberta:

http://www.theglobeandmail.com/servlet/story/RTGAM.20081023.wsuncor1023/BNStory/energy/home

Suncor cuts its spending by 33%.

Add this to the severe housing downturn that is now starting, no matter what the economists at banks say, the massive slowdown in Ont.'s manufacturing sector and decrease in global grain prices. We're in for a few difficult years.

Gopher

Joined: 04 Jun 2005

Posted: Thu Oct 23, 2008 10:04 am Post subject:

Viva Jor-el.

mises

Joined: 05 Nov 2007
Location: retired

Posted: Thu Oct 23, 2008 10:16 am Post subject:

Don't know what Jor-el is. Sounds like shampoo.

Anyways,

http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=ebc691b5-5e4e-4cc8-9587-622da3354572

Quote:

Alberta retail sales slump

Alberta was the only province in the country in August to register an annual decline in retail sales.

Data released by Statistics Canada on Wednesday showed retail sales hit $5.083 billion in August in the province, down by 0.4 per cent from August 2007's $5.104 billion.

Sales were also off on a monthly basis from July's $5.09 billion by 0.1 per cent.

"Once unstoppable, retail growth in Alberta has definitely waned," said Dan Sumner, economist with ATB Financial, adding that accounting for the fact Alberta's inflation rate was four per cent on a year-over-year basis, the volume of retail sales in the province is actually down more than four per cent compared to August of last year.

"Alberta is currently the only province in Canada showing negative year-over-year growth in retail sales. Despite this, since Alberta retail sales growth was so strong for many years, it is not surprising shoppers here are stopping to catch their breath. On a per-capita basis, retail sales are still by far the highest in Alberta."

Sumner said consumer spending has not seen the drastic decline it has in the United States, but the numbers continue to indicate a slowing economy in Alberta and Canada.

"If retail sales continue to weaken, it may be an indication of our own slowdown in the Great White North," he said.

Sales in Alberta remained below year-ago levels for the fourth straight month, said Benjamin Reitzes, with BMO Capital Markets.

On a national level, retail sales dropped by 0.3 per cent from July but were up in August by 4.1 per cent on an annual basis.

"Lower sales in the automotive sector more than offset higher sales in five of the seven other sectors of the retail trade industry," said the federal agency. "Excluding the entire automotive sector, retail sales in the other seven sectors combined rose by 0.4 per cent.

National retail sales are on pace to fall in the third quarter of this year for the first time since 2002, said Reitzes in a research note.

"And with the credit crisis flaring up again in September, prompting a steep drop in the TSX and consumer confidence, the outlook for sales doesn't look good. Spending on services will likely keep consumer spending positive in Q3, but expect a continued deceleration."

Richard Kelly, senior economist with TD Bank Financial Group, said, "It is reasonable to expect that we will see the Canadian consumer weaken further as we near the crucial holiday shopping season."

Alberta has changed a great deal in the past 5 years. Everybody and their dog has built or bought a new house, plasma and the number of new trucks is unlike anything that could possibly be supported by economic fundamentals. People got drunk on "it couldn't happen here, cause of oil" (not all that dissimilar to the "golfing year round and professional athletes" that kept idiots in Phx buying McMansions they couldn't afford) and went shopping.

They are now seeing their houses decline in value and have to shut down their discretionary spending. Edmonton and Calgary have become even worse suburban hell holes and the traffic is really bad. Sadly, where Alberta goes, Canada is destined to follow. But Alberta will still have a massive energy industry to fall back on. What becomes of Eastern Canada, Quebec and Ontario? When did Quebec decide economic growth was un-French anyhow? A digression, but really.

Gopher

Joined: 04 Jun 2005

Posted: Thu Oct 23, 2008 10:51 am Post subject:

Jor-el was not shampoo.

mithridates

Joined: 03 Mar 2003
Location: President's office, Korean Space Agency

Posted: Thu Oct 23, 2008 10:52 am Post subject:

I read the other day that Saskatchewan is doing exceptionally well compared to the other provinces now and just paid off a huge chunk of the debt and lowered taxes substantially. But then again they're barely at a million people now. One other interesting article, not related to Canada: thanks to the war in August and the billion plus in aid it's now starting to receive from other countries, it's actually going to have a nice cushion to protect it in the short term that other countries don't have.

On the other hand

Joined: 19 Apr 2003
Location: I walk along the avenue

Posted: Thu Oct 23, 2008 10:54 am Post subject:

Gopher wrote:

Jor-el was not shampoo.

I gather from the internet that he's Superman's father. Not sure of the relevance, though. In the movie, he seemed to know that a planetary collapse was coming, that's why he sent the baby Superman to Earth.

mises

Joined: 05 Nov 2007
Location: retired

Posted: Thu Oct 23, 2008 10:57 am Post subject:

mithridates wrote:

I read the other day that Saskatchewan is doing exceptionally well compared to the other provinces now and just paid off a huge chunk of the debt and lowered taxes substantially. But then again they're barely at a million people now.

Sask started developing her share of the oil sands and housing absolutely leaped up as a result. A little late to the party. Homes in Moose Jaw, Regina and Saskatoon, in some cases, more than doubled. Especially in the "not-Native" areas.

Gopher

Joined: 04 Jun 2005

Posted: Thu Oct 23, 2008 10:57 am Post subject:

On the other hand wrote:

...a planetary collapse.

Precisely.

Except history proved him right, of course.

On the other hand

Joined: 19 Apr 2003
Location: I walk along the avenue

Posted: Thu Oct 23, 2008 11:03 am Post subject:

Quote:

One other interesting article, not related to Canada: thanks to the war in August and the billion plus in aid it's now starting to receive from other countries, it's actually going to have a nice cushion to protect it in the short term that other countries don't have.

Mith, which country are you referring to here?

mithridates

Joined: 03 Mar 2003
Location: President's office, Korean Space Agency

Posted: Thu Oct 23, 2008 7:37 pm Post subject:

On the other hand wrote:

Quote:

Mith, which country are you referring to here?

The Sakartvelo Georgia in the Caucasus:

http://www.iht.com/articles/ap/2008/10/23/europe/EU-Georgia-Donors.php

Kuros

Joined: 27 Apr 2004

Posted: Thu Oct 23, 2008 7:43 pm Post subject:

I agree, the sky is not falling. Its contracting. Its undergoing a correction.

seosan08

Joined: 10 Oct 2008
Location: Korea

Posted: Thu Oct 23, 2008 7:51 pm Post subject:

On the other hand wrote:

Gopher wrote:

Jor-el was not shampoo.

You're a freaking genius! Rolling Eyes

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