Bank of Canada hikes interest rate on strong economy, but underlines NAFTA risks

By Andy Blatchford

THE CANADIAN PRESS

OTTAWA _ The economy’s impressive run has prompted another interest-rate hike from the Bank of Canada but looking ahead it warned of the broadening negative impact of NAFTA’s uncertain future.

The central bank pointed to unexpectedly solid economic numbers as key drivers behind its decision Wednesday to hike the trend-setting rate to 1.25 per cent, up from one per cent. It was the bank’s third increase since last summer, following hikes in July and September.

While the central bank signalled more rate increases are likely over time, it highlighted the growing, negative impacts related to the unknown outcome of the renegotiation of the North American Free Trade Agreement.

The bank not only made a point of emphasizing the potential negative effects on trade, but also the impacts on business investment in Canada.

Moving forward, the bank said “some continued monetary policy accommodation will likely be needed” to keep the economy operating close to its full potential. The bank said it would also remain cautious when considering future hikes by assessing incoming data such as the economy’s sensitivity to the higher borrowing rates.

Most of Canada’s big banks raised their own prime rates following the announcement.

For Wednesday’s move, the bank couldn’t ignore the encouraging late-2017 data, even as it acknowledged the NAFTA-related risks.

Governor Stephen Poloz stressed during a news conference that the bank remains data dependent, although he conceded a rate hike wasn’t a “no-brainer” this time around.

“Of course, the big cloud over the forecast as well as our discussion is, well, NAFTA,” Poloz said.

“How immediate? How big? Lots of debate around that. Given those uncertainties, of course, the possibility of not moving (the rate) this time was in the air.”

In particular, Poloz noted that some research has found that the trade impacts of the deal’s demise might not have such a major impact on Canada.

However, he stressed that the end of NAFTA would likely take a big bite out of investment in Canada.

“We can’t just relax and assume that it would be a small shock,” he said.

The bank’s latest monetary policy report, also released Wednesday, said that trade-policy uncertainty is expected to lower investment by two per cent by the end of 2019. The report also said new, or “greenfield,” foreign direct investment into Canada has fallen since mid-2016 a possible impact of the trade uncertainty.

The Bank of Canada warned that lower corporate taxes in the U.S. could encourage firms to redirect some of their business investments south of the border. On the other hand, it predicted Canada to see a small benefit from the recent U.S. tax changes, thanks to increased demand.

In explaining the hike, the bank said in a statement that inflation was close to target and the economy was operating roughly at capacity. It also said consumption and residential investment had been stronger than anticipated, reflecting healthy employment growth.

“Business investment has been increasing at a solid pace, and investment intentions remain positive,” the bank said.

Moving forward, the bank predicted household spending and investment to gradually contribute less to economic growth, given the higher interest rates and stricter mortgage rules. It predicted Canada’s high levels of household debt would amplify the effects of higher interest rates on consumption.

Exports have been weaker than anticipated, but are still expected to contribute a larger share of Canada’s growth, the bank said. It also noted that government infrastructure spending has helped lift economic activity.

“Today’s rate hike was a rear-view mirror move, but the Bank of Canada hints that the view out the front window isn’t quite as sunny,” CIBC chief economist Avery Shenfeld wrote in a research note to clients after the rate announcement.

“We share the Bank of Canada’s view that higher rates will be needed over time. But perhaps not as fast and furious as the market was starting to think. The bank’s statement put NAFTA uncertainties right up front.”

The bank also released new economic projections Wednesday in its latest monetary policy report.

For 2017, it’s now predicting three per cent growth, as measured by real gross domestic product, compared with its 3.1 per cent prediction in October.

The bank slightly increased its predictions for 2018, up to 2.2 per cent from 2.1 per cent. It expects the economy to expand by 1.6 per cent in 2019, up from its previous call of 1.5 per cent.

The fourth quarter of 2017 and the first quarter of 2018 are each expected to see annualized growth of 2.5 per cent.

Poloz raised rates in July and September in response to a surprisingly strong economic run that began in late 2016. The hikes took back the two rate cuts he introduced in 2015 to help cushion, and stimulate, the economy from the collapse in oil prices.

Up until a couple of weeks ago, many forecasters still had doubts that Poloz would raise the rate Wednesday. However, two strong reports the December jobs data and the bank’s business outlook survey led many experts to change their calls.

Illegal ride hailing underway in B.C. while government reconsiders laws

By Linda Givetash

THE CANADIAN PRESS

VANCOUVER _ As the British Columbia government explores the impact of allowing ride-hailing services like Uber and Lyft, a number of companies have already been operating illegally in the province.

The Passenger Transportation Branch said at least seven app platforms are known to be in use by drivers and consumers in Metro Vancouver.

An advisory issued by the branch last fall said the drivers, not the app developers, are assuming the risks of running an unlicensed commercial transit service and face fines of $1,150.

Branch director Kristin Vanderkuip told an all-party legislature committee meeting in Vancouver on Monday that $12,650 in fines have been issued to illegal drivers to date. Some of the services have been found in the Victoria area as well, she said.

The branch is trying to educate consumers about the risks of using unlicensed ride-hailing services, she said.

Ted Townsend, communications director for the City of Richmond, said Tuesday it’s difficult to tell how many drivers or services are involved and their exact location because they’re organized online and transcend city boundaries.

Municipalities can’t provide business licences to drivers or app providers because there is no legal framework for them, he said in an interview.

Officials are responding to the issue as they would with any business operating without a licence, he said, but identifying drivers is a challenge.

“It’s difficult to obtain the type of evidence and information that would be required in many cases to take action,” he said. “They’re not bricks-and-mortar type of operations so it’s hard to establish exactly where they’re operating, where they’re based.”

Townsend said a provincial framework around ride-hailing businesses, which the government is exploring through hearings this week, will help cities do their part in licensing or prohibiting services.

In the meantime, he said Richmond is working with the Transportation Ministry and neighbouring cities to crack down on illegal ride-hailing.

The ministry said it has received complaints about the unlicensed companies and has several ongoing investigations.

The Passenger Transportation Branch has issued more than 20 cease and desist orders to vehicle owners across the province, it said.

The ministry warned drivers and consumers about the risks associated with the companies.

“The driver is subject to all penalties for operating illegally on the road the driver is subject to all penalties for operating illegally on the road _ and they are subject to fines of $1,150, as well as further penalties for not disclosing the commercial use of their vehicles to their insurance provider,” it said in an emailed statement.

“Customers need to know that if they choose to get a ride through these apps they are choosing to take a trip in a vehicle that has not been licensed to operate legally and safely in B.C.”

Government of Canada removes processing fee to hire foreign caregivers

When live-in caregiving is more affordable for Canadians who need it most, families can spend less time worrying about finances and more time with their loved ones.

That’s why today, the Honourable Patty Hajdu, Minister of Employment, Workforce Development and Labour, announced the elimination of the Labour Market Impact Assessment (LMIA) processing fee for middle class families seeking to hire foreign caregivers for children, and all families seeking caregivers for individuals requiring assistance due to a physical or mental condition.

Achieving the Minister’s mandate letter commitment to eliminate the $1000 LMIA processing fee for certain families and individuals will support those most in need of financial assistance to meet their family caregiving needs and responsibilities.

Quote

Our government knows that Canadians deserve better access to care for their loved ones. Waiving the LMIA fee will help put care within reach of more Canadian families.
– The Honourable Patty Hajdu, Minister of Employment, Workforce Development and Labour

Quick Facts

  • To provide financial relief to families or individuals seeking to hire foreign caregivers, the Government of Canada is eliminating the $1000 per position LMIA fee for the following two groups:
    • individuals seeking to hire foreign caregivers to provide in-home support for themselves or for another individual (for example, mother, father, brother, sister, son, daughter, friend), who requires assistance due to a physical or mental condition; and
    • families or individuals with less than $150,000 in gross annual household income seeking to hire foreign caregivers to provide childcare in their home to a child or children under 13 years of age.
  • In April 2017, the Government of Canada set a path forward for the Temporary Foreign Worker Program, including fulfilling its commitment to better protect vulnerable foreign workers. This included a commitment to work with community organizations devoted to protecting vulnerable temporary foreign workers to ensure they are informed of their rights and protections when they arrive in Canada.
  • To qualify for the LMIA processing fee exemption for individuals requiring assistance due to a physical or mental condition, a medical certificate from a treating medical practitioner attesting to their condition will be required at the time the application is submitted.

Associated Links

SOURCE Employment and Social Development Canada

Executives Say It’s More Challenging to be a Leader Today

Leading a business is only getting harder, recent research found. In a Robert Half Management Resources survey, 87 per cent of chief financial officers (CFOs) said it is more challenging to be a company leader today than it was five years ago.

But survey results also found many managers enjoy support from their teams. Seventy-nine per cent of workers surveyed expressed confidence in their leaders, while only 6 per cent do not feel confident at all.

Portrait of a young attractive business woman.

Provinces Where Leadership Challenges Have Risen Most
Below are the provinces where the difficulties of being in management have intensified the most over the past five years, based on the percentages of executives who said it is significantly or somewhat more challenging to be a company leader today.

  1. British Columbia (100 per cent)
  2. Alberta (98 per cent)
  3. Quebec (95 per cent)
  4. Manitoba (92 per cent)

Navigating the Changing Leadership Landscape
“Facing an ever-evolving corporate landscape, executives have to deal with the pressures of emerging trends that require them to continually reassess everything from technology and staffing challenges, to regulatory demands and compliance requirements,” said David King, Canadian president of Robert Half Management Resources. “Great leaders understand the fundamentals of their field, but also know that it is the ability to recognize new opportunities through innovation that will ultimately set their business apart.”

King reminds managers to look to their employees for support. “An engaged team is a committed team, and executives who address challenges and opportunities with their employees build a foundation of trust, and shared goals for business growth.”

Robert Half Management Resources details five challenges facing leaders today and the attributes needed to address them:

1. Taking a ‘big picture’ view. As CFOs whose work outside of finance has expanded in recent years know well, executives are no longer tasked with just overseeing their department. They must draw on their strong business acumen, understanding how their unit’s decisions and performance affect the broader organization.

2. Overcoming staffing challenges. Building a skilled team in the face of candidate shortages and retention concerns requires special talents. Business leaders today are tasked with fostering relationships with recruiting sources and developing an effective staffing management strategy, blending full-time personnel with specialized professionals who can be brought in on-demand.

3. Maintaining an edge over diverse competitors. Firms face threats not just from traditional competitors, but also increasingly from organizations disrupting the marketplace with new business models. Organizations need leaders who can anticipate changes in the competitive landscape and inspire innovation to stay on top.

4. Remaining compliant with evolving mandates. Regulatory pressures continue to mount for many industries and companies. Executives today need to be experts on the mandates affecting their business and understand how compliance is more than meeting a set of requirements and can instead help the firm prosper.

5. Keeping up with technology. As history has repeatedly shown, technology can change everything at a moment’s notice. The onus is on business leaders to monitor the technology trends affecting their organizations and positions and adapt accordingly.

Insurance and bank stocks weigh on Toronto stock index, as loonie edges up

By David Hodges

THE CANADIAN PRESS

TORONTO _ Canada’s largest stock index finished in the red for a third consecutive trading session on Friday, as banks and insurance companies lost ground.

The Toronto Stock Exchange’s S&P/TSX composite index fell 42.83 points to 16,039.26, with the financial sector down about three-quarters of a percentage point.

All the big banks reported losses as did major insurers including Fairfax Financial Holdings (TSX:FFH), which saw its shares fall $13.76 or 1.98 per cent to $680.46 at the closing of markets.

“The bank group is kind of taking a breather this week in particular after having a pretty good year to date. I think most bank shares are up 10 per cent this year,” said Cavan Yie, a portfolio manager at Manulife Asset Management.

“But what I think you’re seeing is investors kind of taking money off the table ahead of 2018, potentially ahead of some mortgage rule changes in Canada which are likely to impact loan growth for 2018. You’ll see lower mortgage originations and potentially lower-than-expected bank earnings.”

Canada’s banking regulator reported last month it’s going ahead with a new stress test for home buyers who don’t need mortgage insurance but who will soon have to prove they can make their payments if interest rates rise.

The move is expected to reduce the maximum amount buyers will be able to borrow to buy a home, even if they have a down payment of 20 per cent or more, starting in January.

South of the border, markets were mixed and relatively flat a day after Wall Street was caught off guard by a proposed delay in President Donald Trump’s proposed tax plans. On Wednesday, Senate Republicans said they’re rolling out their own tax bill, which would delay Trump’s corporate tax rate cut until 2019, instead of 2018 under the House bill.

“There’s a lot of uncertainty surrounding the current regime in the U.S.,” Yie said. “Investors are taking a wait-and-see approach and not reacting right away.”

The Dow Jones industrial average declined 39.73 points to 23,422.21 and the S&P 500 index edged down 2.32 points to 2,582.30. The Nasdaq composite index eked out a 0.89 of a point rise to 6,750.94.

In currency markets, the Canadian dollar was trading at an average price of 78.85 cents US, up 0.06 of a U.S. cent. That marks the loonie’s third straight day of gains against a weakening greenback.

On the commodities front, the December crude contract gave back 43 cents at US$56.74 per barrel and the December natural gas contract was up a cent at US$3.21 per mmBTU.

The December gold contract fell $13.30 to US$1,274.20 an ounce and the December copper contract was down a cent to US$3.08 a pound.

Canadian and American companies clearly want to do more business together

Despite continued geopolitical risks to global trade seemingly at every turn, Canadian export performance has grown at a rate higher than expected – 8 per cent this year over the projected 6 per cent, according to Export Development Canada’s (EDC) latest semi-annual Global Export Forecast released today.

In particular, stronger demand from US companies and consumers for Canadian products and services is playing a big part in that increase, just as NAFTA negotiations reach a critical juncture.

The energy sector’s return to growth is the main reason that Canada’s exports are picking up, as the oil patch rebounds from devastating forest fires and an ongoing lower price environment. The major buyer of that energy? You guessed it: the US. As the US economy perks up and industry begins to churn, energy demands have followed suit.

At the same time, ores and metals will see a big jump as the US and global industrial sectors begin to slowly increase production. That resurgence in production is also driving up Canadian exports of Canadian machinery and equipment in the strengthening U.S. market.

Canada’s export engine is revved up and firing on all cylinders,” says Peter Hall, EDC Vice President and Chief Economist. “Despite the political signals coming out of the U.S., Canadian and US companies are clear: they want to do more business together. We are seeing more Canadian companies making new business investments in the US and we’re already measuring its impact on boosting demand for Canadian exports, specifically machinery and equipment.”

Highlights: 

Sectors posting double-digit growth include:

  • Energy 31%
  • Ores & Metals 14%
  • Industrial Machinery & Equipment 11%
  • Energy exports stand at $77 billion and are forecast to grow by an astounding 31 per cent in 2017. However, the intense growth will be short-lived as gains flat line in 2018.
  • Services, a key driver in the Canadian export story, will post a positive gain of almost 6 per cent this year and maintain that level of momentum in the longer-term outlook.
  • The forestry sector remains in positive territory with gains of 4 per cent, but growth will slow due to the ongoing softwood lumber dispute between Canada and the US.

Overall, Canadian export growth is expected to level out to 4 per cent in 2018 after its 8 per cent gain this year, pushing export growth above the pre-recession high water mark. “We might very well have finally put our feet on the bottom of this long export stagnancy period,” added Hall.

Globally, EDC is projecting world growth to rise from 3.6 per cent this year to 3.8 per cent in 2018, fuelled by robust growth in emerging markets, specifically ChinaIndia and Brazil. However, developed markets have turned a corner with major economies recording stronger performances this year.

Developed markets are also providing growth opportunities in the long-term, particularly in the EU as a result of the new Canada-EU Comprehensive Economic and Trade Agreement (CETA). The free trade agreement opens up a market of approximately 500 million people worth $20 trillion to Canadian exporters.

“It’s been a long time coming, but global growth is back,” Hall adds. “Canada’s exporters are poised to gain from this growth throughout 2017 and 2018.”

For the full report, visit EDC’s Global Export Forecast: Fall 2017

EDC helps Canadian companies go, grow, and succeed in their international business. As a financial Crown corporation, EDC provides financing, insurance, bonding, trade knowledge, and matchmaking connections to help Canadian companies sell and invest abroad. EDC can also provide financial solutions to foreign buyers to facilitate and grow purchases from Canadian companies.

For more information about how we can help your company, call us at 1-888-434-8508 or visit www.edc.ca.

SOURCE Export Development Canada

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