Hi Tom,
We do live in interesting times don't we. We have fallen faster and deeper
than I even thought possible.I think a lot of people will be feeling poorer tomorrow,
so that should dampen consumer demand if Greenspan is still worried about that.
I can't tell if we have reached the level where investors are losing their initial capital yet or
whether this is still only the profits of the last few years.
You asked about the Canadian economy. The Canadian economy
never really got going for most people during this
bull run. We still have 9 percent unemployment. When adjusted
for inflation, real earnings have actually been declining for people
for quite a few years now. Our social programs are under pressure
due to an older population requiring more medicial care and a demand for
better more expensive services. We have a smaller group of young people
coming up from behind so they won't generate the tax dollars necessary to
maintain social programs at old service levels. Taxation levels are high at
all levels of government. The low commodity prices combined with quotas
on exports to the US , our largest trading partner is causing problems
in certain parts of the country.
In British Columbia, some of the the paper and wood mills are either running
below capacity or have shut down. Tourism is one of the few bright areas as
the low Canadian dollar is attracting US visitors. On the HITECH side, one or two
companies are restricting their hirings in order to get cost under control. It is very
competitive out there. Japanese exports and tourism numbers are down too.
We appear to be in a recession, it is just not official yet.
On the plus side Alberta is doing well having diversified out of oil into telecommunication
HITECH. Ontario was finally starting to turn around, but the interest rate hike there
may have killed the recovery. Quebec is in the same state as Ontario.
On a personal note because of the currency, I need to think twice
before planning trips abroad. It was shocker too when I converted some
money recently to pay for some stock in my US account.
Here are two views on the Canadian economy.
Harry
***************************************.
Tuesday, September 1, 1998
Canadian growth slips to 1.8%
More FP Economic News
By ALAN TOULIN
Ottawa Bureau Chief The Financial Post
ÿCanada's economy expanded a modest 0.4% in the second quarter, or just
1.8% on an annualized basis, Statistics Canada reported yesterday.
ÿFinancial markets were looking for slower growth in gross domestic
product and the figures had little impact on the C$. The currency closed
at US63.76› compared with Friday's close of US64.08›.
ÿ"Overall, we were reasonably pleased with the numbers," said Don
Milolich, economist with CIBC Wood Gundy Securities Inc. "There wasn't a
lot of surprises for the market and you didn't see much of a reaction."
ÿThe second-quarter figure is weaker than first-quarter growth of 0.8%.
The annualized rate also compares unfavorably with 3.4% for the first
quarter.
ÿNonetheless, economists pointed to signs of continued strength in the
economy despite the uncertainty swirling around international financial
markets.
ÿDomestic demand -- the measure of growth in the domestic economy
without trade taken into account -- was up 1.2% during the quarter,
compared with 0.2% in the first quarter.
ÿ"Certainly the domestic side of the economy performed strongly with
good domestic demand," said John Clinkard, an economist with Canadian
Imperial Bank of Commerce. "It happened at the beginning of the quarter
and things cooled out after that."
ÿThe slowdown at the end of the quarter was related to inventory
declines brought about by the lengthy strike at General Motors Corp. in
the U.S., Clinkard said.
ÿConsumer spending remained buoyant, with spending up 1.4% after a pause
in the first quarter. Much of the spending was related to new vehicle
purchases, StatsCan said.
ÿBusiness investment also grew in the second quarter, up 2.8% compared
with 0.7% in the first. StatsCan reported a sharp rebound in the
purchase of machinery and equipment, mostly through imports.
ÿ"The consumer and business side both picked up even though there was
drag from the trade side," said Adrienne Warren, economist with Bank of
Nova Scotia.
ÿHowever, Warren expects consumer and business confidence to slide
somewhat because of the international financial crisis and the impact it
is having on the C$.
ÿEconomists are shaving their growth forecasts for the economy for this
year and next based partially on the slowdown in GDP and the prospect of
higher interest rates. Most are calling for growth at 3% or slightly
less.
ÿ"There is enough momentum in the economy now to carry us into 1999
though growth will be lower, perhaps just under 3% which is decent
growth, though not at the same pace as the last two years," Warren said.
ÿStatsCan also reported Canada's current account figures yesterday.
Canadians continued to spend more abroad on goods and services than they
earned, but the current account deficit was down marginally to $4.23
billion during the second quarter. This compared with $4.27 billion in
the first quarter. A current account deficit means more money is leaving
the country than is coming in and this exerts downward pressure on the
C$.
ÿ
******************************
Monday, 31 August, 1998
Canadian economic growth seen hit by rate hike
Updated 4:45 p.m. EDT, August 31, 1998 TSE
5530.70
-235.61
VSE
388.60
-14.31
C$
US63.76
-0.32
ME
2804.59
-124.78
ASE
1719.06
-35.62
DJIA
7539.07
-512.61
ÿOTTAWA, Aug 31 (Reuters) - Predictions of slower Canadian economic
growth proved true on Monday and economists agreed further dampening is
in store as rising interest rates and slumping consumer confidence take
their toll.
ÿ Statistics Canada said the nation's gross domestic product grew by
only 0.4 percent in the second quarter after downwardly revised growth
of 0.8 percent in the first quarter. On an annualized basis, growth was
1.8 percent, down from the 3.4 percent annualized growth last quarter.
ÿ Economists said instability in Asian markets and an accompanying slump
in commodity prices and the Canadian dollar have put the brakes on the
country's economy, which last year was galloping along at a 4.2 percent
annualized pace.
ÿ Prospects for longer-term growth look even dimmer, given the Bank of
Canada's decision last week to raise interest rates to defend the
Canadian dollar, which had slid to a record low just above 63 U.S. cents
before the rate hike.
ÿ Higher interest rates dampen domestic growth because they raise the
cost of borrowing money for businesses and consumers.
ÿ Economists surveyed by Reuters have slashed their 1999 forecasts by as
much as one percentage point to take into account the rate hike and
continued international market turmoil.
ÿ Nesbitt Burns economist Doug Porter said he has been shaving one-tenth
of a percentage point off his growth forecasts "every couple of weeks,"
mostly to take into account the continuing slide in commodity prices. He
is now predicting 1998 growth of 2.9 percent, down from the 3.1 percent
he was predicting just weeks ago.
ÿ In light of the rate hike, Porter slashed his 1999 growth forecast to
2.0 percent from 3.0 percent, while Bank of Montreal senior economist
Sal Guatieri revised his outlook for next year to 2.25 percent from 2.75
percent.
ÿ Guatieri said he is still expecting growth of around 3.25 percent this
year -- down from his original prediction of 3.5 percent or higher --
because the worst effects of the rate hike will take a year or two to
hit.
ÿ "It certainly makes a big dent on 1999 growth because then we've got a
slower pattern all through 1999, and that takes at least a half a
percentage point from the forecast," Guatieri said, adding that the
higher interest rate should dampen fourth-quarter growth to 2.0 percent
from his original prediction of 2.4 percent.
ÿ Higher interest rates in an already weakening economy have brought the
first careful whisperings of recession.
ÿ "You can never completely dismiss it out of hand, especially when
financial markets are under this much stress," Porter said. "But I tend
to attach a very low probability to a recession in 1999 -- mostly based
on the fact that the U.S. economy remains on a very strong footing."
ÿ He and Guatieri said Canada's weak disposable income growth and
negative savings rate are major warning signs for the country's
prospects because they mean Canadians are borrowing money to finance
their spending.
ÿ "The fundamentals don't look very encouraging for the Canadian
consumer....They'll have to pay off those loans at some point, and the
higher interest rates will, of course, make that much more difficult,"
Guatieri said.
ÿ "On top of that you've got a bear market in stocks.... That will
really undermine wealth and confidence."
ÿ The Toronto Stock Exchange's key 300 composite index has fallen 27
percent since its peak in April. By contrast, New York's Dow Jones
Industrial Average has dropped only about 15 percent since peaking in
July.
ÿ The slowing growth and higher interest rates will also take a bite out
of the federal government's expected surplus this fiscal year, which
ends March 31, and next year's surplus too.
ÿ Economists who had forecast a surplus this year of more than C$5
billion, with even better things to come as Finance Minister Paul Martin
tidied the fiscal house in the years ahead, are now suggesting that
Canada's first positive balance sheet may be hard to follow.
ÿ "I don't think this dramatically alters this year's forecast, but the
concern really is for next year. I think given the downward adjustment
in the growth outlook and higher rates, they'll be hard pressed to
improve on this year's C$6 billion (expected surplus)," Porter said.
ÿ ($1 $1.57 Canadian)
ÿ
ÿ |
