Central bankers have slashed interest rates reducing borrowing costs to help keep businesses afloat. Governments continue to inject billions of dollars of borrowed money into their economies. In Canada, pandemic financial supports are nearing $500 billion.
Low interest rates mean cheap money for all including our federal Liberal government which has driven debt to GDP ratios from 34 per cent in 2019 to near 100 per cent in 2021.
Adrian White – Cape Breton Post
The amazing thing about cheap money today is that no one seems to care or even notice how much debt Canadians and our governments are accumulating. And there appears to be no urgency for repayment.
Governments seem more than ready to throw money (our tax dollars) at Canadians whether they need it or not. As a result, they have enabled an unhealthy dependency on government (taxpayer) to solve everyone’s problems. That negatively impacts innovation, creativity and productivity in Canada.
Soon we will have a federal budget. The first in almost two years. Rumours are afloat there will be lots more borrowed stimulus cash to reboot the economy as the pandemic subsides and vaccines get rolled out later this year.
A major concern for most Canadians is the slow rollout of pandemic vaccines. We are all painfully aware that Canada has no domestic COVID-19 vaccine production and is totally dependent on foreign producers.
There are a couple of reasons why Canada does not have large scale domestic vaccine production.
First is Canada’s unfavourable patent protection laws which guarantee shorter windows of time for exclusive marketing of products developed in Canada by the manufacturer before generic production is allowed.
This means when a drug company brings an approved drug to market after investing many years and billions of dollars in research and development, they may not have enough time to recover those large investment costs plus a reasonable profit before Canada allows generic production to compete with the drugmaker.
” … the Americans are eating our lunch when it comes to attracting new capital investment dollars.” — Adrian White
Secondly, the income tax climate for large drug manufacturing corporations in Canada is not as favourable as it is in other countries such as the United States or India.
To further emphasize Canada’s disadvantages as a place to do business let’s look at corporate investment in Canada over the last few years.
A recent report, “From the Chronic to the Acute: Canada’s Investment Crisis” by the C.D. Howe Institute, tells a bleak story of a nation that will struggle to compete when it emerges from the COVID-19 pandemic.
The study calculates that new investment in Canada per available worker has fallen to 58 cents for every dollar of investment in the U.S. In other words, the Americans are eating our lunch when it comes to attracting new capital investment dollars. This is a reflection of ill-founded policies on the part of our governments that drive investors away from Canada.
That should be concerning for all Canadians.
Over the past five years, the investment gap between Canada and other advanced countries has become “unprecedentedly” wide. By the middle of the past decade when the Liberal government took power it was 81 cents in Canada to every dollar spent in the OECD. That has shrunk to 60 cents now. That is a sure sign of a government working against you, not for you.
The C.D. Howe Institute study looks at three kinds of investment: machinery and equipment, buildings and intellectual property (IP) that drives innovation. Of these, IP investment is by far the worst, sinking steadily since the mid-2000s to just 29 cents to the U.S. dollar in 2020.
Why does it matter? It’s another reason why Canada doesn’t have a world-class domestic vaccine producer. And Canada desperately needs capital investment to pay back the $1 trillion in government debt we are leaving our grandkids.
It puts Canada at a competitive disadvantage to other advanced countries and increases the economy’s dependence on consumers for growth.
For example, Canada now has an unhealthy dependence on the domestic housing market to stimulate its economy. The nation’s mortgage debt is now over $1.75 trillion which is scary. 2020 was the fastest year ever for mortgage debt growth due to cheap money availability.
The prospect that Canadians will find themselves increasingly relegated to lower-value-added jobs relative to workers in the United States and OECD, who are raising their productivity and earnings faster, should encourage the Canadian government to take action on many fronts. There will be little investment in Canada’s “green economy” if we continue down this road.
Government can’t influence all factors affecting business investment. But government can be supportive by investing in infrastructure, particularly oil pipelines, cutting business taxes, reviewing regulations that hamper competition, resolving international trade uncertainties and loosening inter-provincial trade restrictions.
Can the current Liberal government figure this out? Let’s see if needed government policy changes show up in the next federal budget. If not, we will continue to lose traction in attracting new capital investment to Canada and the needed jobs that brings. And we still won’t have a world class vaccine producer based in Canada.
Adrian White is CEO of NNF Inc., Business Consultants. He resides Sydney and Baddeck.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
