Alberta Finance Minister Travis Toews says the goal in 2021 is to get vaccines out and put the COVID-19 pandemic in the rear-view mirror, then work to fix a battered and beleaguered economy.
But with a $21-billion deficit and Alberta’s wellspring oil and gas economy still in flux, there’s a red-inked elephant in the room: Where’s the money going to come from?
“We will not cut our way out of a $21-billion deficit,” Toews said in a year-end interview with The Canadian Press.
“We have to get the economy growing again. And economic recovery will very quickly become job No. 1 as we start to get past the pandemic.”
Roll the tape back to the start of 2020. Premier Jason Kenney’s United Conservative government was busy trying to resuscitate an already wheezing economy only to see COVID-19 blow everything apart and take with it Kenney’s signature election promise to balance the deficit in his first term.
That goal is a distant memory with a projected budget deficit this year tripling an original forecast of $6.8 billion. COVID-19 has slashed demand for energy, shuttered businesses and demanded relief aid and job supports to keep people going.
Toews said the plan is to get Alberta out of the financial ditch in February with the budget.
In November, he laid out “fiscal anchors” for the journey: keeping the net-debt to GDP ratio under 30 per cent, reducing public sector spending to match comparable jurisdictions and setting a timeline to get the budget back to balance.
University of Calgary economist Trevor Tombe said Alberta is in the enviable position of having options. It’s the lowest-taxed province, and oil and gas will continue to deliver billions of dollars to the treasury for the foreseeable future, though not in the same eye-popping amounts as boom times.
“But even if (the energy revenue) is significant, it won’t be nearly enough, so we need to shift gears on how we fund public services.”
By his number crunching, Tombe said if Toews is to meet his targets, Alberta will need to find an extra $7 billion a year if it wants to get the budget out of the red and start paying off a debt now projected to reach $97 billion in 2021.
Such talk raises again the spectre of a sales tax.
Alberta’s Social Credit government brought in a two per cent levy in 1936 and quietly dropped it a year later. After the Second World War, Alberta’s oil and gas economy exploded, allowing it to eschew the stability of a tax.
Sales tax is the third rail of Alberta politics and by law can’t be brought in without a referendum. Toews said it’s not in the cards, but he’ll strike a panel to revisit Alberta’s revenue generation.
Opposition NDP Leader Rachel Notley did not bring in a sales tax when she was premier before Kenney was elected in 2019. She agrees with the UCP that it would be a debilitating blow to a fragile economy.
Notley says the solution begins with further diversifying the economy and building on Alberta’s strengths of a young educated workforce, a burgeoning tech sector and entrepreneurial business owners.
Oil and gas are key, she adds, but warns that Kenney’s blinkered focus on them to the exclusion of other opportunities will be the province’s undoing.
“If (Kenney) continues to insist on operating through an ideological lens, which is squarely focused backward by about 25 years … then we are in big trouble.”
The economy is also a political question. The United Conservatives reach the midpoint of their mandate in 2021 and early initiatives, including a deep slash to the corporate tax rate, have yet to bear fruit.
Political scientist Duane Bratt said COVID-19 and the economy are destined to again slam into each other in 2021. The government has said that after the pandemic is over it will follow through on saving money in health care including reducing or outsourcing 11,000 jobs.
“How do you say, ‘Thank you for all the hard work (during the pandemic). Here are your layoff papers?’” said Bratt with Mount Royal University in Calgary.
Broadly speaking, Bratt said, the NDP is more trusted by the electorate on the health file, while the United Conservatives own the economy. That raises future ballot box questions two years from now, if the UCP has angered Albertans with its health decisions while failing to get the economy going.
“If the economy trumped everything in 2019, does health trump everything in 2023?” Bratt said.
© 2020 The Canadian Press
Toronto Stock Exchange trades flat with Fed speakers in focus
Toronto Stock Exchange index traded flat on Tuesday as investors looked to the upcoming speeches from U.S. Federal Reserve officials after the central bank’s hawkish tilt last week weighed on risk-driven assets.
* At 9:42 a.m. ET (13:42 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.02 points, or 0.08%, at 20,172.38.
* All eyes are on the U.S. central bank, after the Fed last week signaled a potentially tougher stance on inflation and shifted projections for its first two rate hikes into 2023, sparking a selloff in global stocks.
* But strength in commodity prices, as well as renewed buying into technology stocks, had seen the TSX scale record highs last week.
* The heavyweight energy sector dropped 1.2% as U.S. crude prices were down 0.3% a barrel, while Brent crude lost 0.2%. [O/R]
* The financials sector slipped 0.1%. The industrials sector rose 0.3%.
* Fertilizer maker Nutrien rose 2% after it outlined plans to increase potash output in the wake of European Union sanctions on Belarus.
* On the TSX, 93 issues were higher, while 130 issues declined for a 1.40-to-1 ratio to the downside, with 21.25 million shares traded.
* The largest percentage gainers on the TSX were Ballard Power, which jumped 2.7% receiving a follow-on order for fuel cells, and Alimentation Couche-Tard, which rose 2.5%.
* Kinross Gold fell 4.7%, the most on the TSX, while the second biggest decliner was Endeavour Silver, down 2.8% as precious metal prices slipped o
Canadian regulator lifts banks’ capital buffer to record, priming for post-pandemic world
Canada‘s financial regulator raised the amount of capital the country’s biggest lenders must hold to guard against risks to a record 2.5% of risk-weighted assets, from 1% currently, in a surprise move that could pave the way for them to resume dividend increases and share buybacks.
The new measures, which take effect on Oct. 31, is a sign that the economic and market disruptions stemming from the coronavirus pandemic have abated and banks’ capital levels have been resilient, the Office of the Superintendent of Financial Institutions (OSFI) said in a statement.
But the regulator acknowledged that key vulnerabilities, including household and corporate debt levels, as well as asset imbalances caused by steep increase in home prices over the past year, remain.
In a sign of concern about the housing market, OSFI and the Canadian government raised the benchmark to determine the minimum qualifying rate for mortgages, starting June 1.
The increase in the Domestic Stability Buffer (DSB) to the highest possible level raises the Common Equity Tier 1 (CET1) capital – the core bank capital measure – to 10.5% of risk-weighted assets; a 4.5% base level, a “capital conservation buffer” of 2.5%, and a 1% surcharge for systemically important banks, plus the DSB.
The change “gives OSFI more leeway to loosen a restriction down the road, namely the freeze on buybacks and dividend increases,” National Bank Financial Analyst Gabriel Dechaine said.
OSFI felt it was “useful for the banks to understand what our minimal capital expectations are and to give them time to adjust to that… ahead of any lifting of the temporary capital distribution restrictions,” Assistant Superintendent Jamey Hubbs said on a media call.
Even with the higher requirement, Canada‘s six biggest banks would have excess capital of about C$51 billion, dropping from C$82 billion as of April 30, according to Reuters calculations.
That was driven in part by a moratorium on dividend increases and share buybacks imposed by OSFI in March 2020, although a pandemic-driven surge in loan losses has so far failed to materialize.
The Canadian banks index slipped 0.25% in morning trading in Toronto, while the Toronto stock benchmark fell 0.1%.
The increase is the first since the last one announced in December 2019, which did not come into effect as planned in April 2020, as OSFI made an out-of-schedule change https://www.reuters.com/article/canada-mortgages-regulation-idUSL1N2B636J that dropped the rate to 1% in March. It has maintained that level at its twice yearly reviews.
Prior to that, OSFI had raised the required level by 25 basis points at every twice yearly review since it was introduced at 1.5% in June 2018.
($1 = 1.2326 Canadian dollars)
(Reporting By Nichola Saminather; Editing by Marguerita Choy and Jonathan Oatis)
Canada Economic Indicators
The economic indicators used to gauge the performance of an economy and its outlook are the same across most nations. What differs is the relative importance of certain indicators to a specific economy at various points in time (for instance, housing indicators are closely watched when the housing market is booming or slumping), and the bodies or organizations compiling and disseminating these indicators in each nation.
Here are the 12 key economic indicators for Canada, the world’s 10th-largest economy:1
Statistics Canada, a national agency, publishes growth statistics on the Canadian economy on monthly and quarterly bases. The report shows the real gross domestic product (GDP) for the overall economy and broken down by industry. It is an accurate monthly/quarterly status report on the Canadian economy and each industry within it.2
Employment Change and Unemployment
Key data on the Canadian employment market, such as the net change in employment, the unemployment rate, and participation rate, is contained in the monthly Labour Force Survey, released by Statistics Canada. The report contains a wealth of information about the Canadian job market, categorized by the demographic, class of worker (private sector employee, public sector employee, self-employed), industry, and province.3
Consumer Price Index
Statistics Canada releases a monthly report on the consumer price index (CPI) that measures inflation at the consumer level. The index is constructed by comparing changes over time in a fixed basket of goods and services purchased by consumers. The report shows the change in CPI monthly and over the past 12 months, on an overall and core (excluding food and energy prices) basis.4
International Merchandise Trade
This monthly report from Statistics Canada shows the nation’s imports and exports, as well as the net merchandise trade surplus or deficit. The report also compares the most current data with that for the preceding month. Exports and imports are shown by product category, and also for Canada’s top ten trading partners.5
Teranet – National Bank House Price Index
This composite index of house prices across Canada was developed by Teranet and the National Bank of Canada and represents average home prices in Canada’s six largest metropolitan areas. A monthly report shows the change in the index monthly and over the past 12 months, as well as monthly and 12-month changes in Canada’s six and 11 largest metropolitan areas.6
RBC Manufacturing Purchasing Managers’ Index – PMI
Released on the first business day of each month, this indicator of trends in the Canadian manufacturing sector was launched in June 2011 by Royal Bank of Canada, in association with Markit and the Purchasing Management Association of Canada. RBC PMI readings above 50 signal expansion as compared to the previous month, while readings below 50 signal contraction. The monthly survey also tracks other information pertinent to the manufacturing sector, such as changes in output, new orders, employment, inventories, prices, and supplier delivery times.7
The Conference Board’s Consumer Confidence Index
The Conference Board of Canada’s Index of Consumer Confidence measures consumers’ levels of optimism in the state of the economy. It is a crucial indicator of near-term sales for consumer product companies in Canada, as well as an indicator of the outlook for the broad economy since consumer demand comprises such a significant part of it. The index is constructed on the basis of responses to four questions by a random sampling of Canadian households. Survey participants are asked how they view their households’ current and expected financial positions, their short-term employment outlook, and whether now is a good time to make a major purchase.8
Ivey Purchasing Managers Index – PMI
An index prepared by the Ivey Business School at Western University, the Ivey PMI measures the monthly variation in economic activity, as indicated by a panel of purchasing managers across Canada. It is based on responses by these purchasing managers to a single question: “Were your purchases last month in dollars higher, the same, or lower than in the previous month?” An index reading below 50 shows a decrease; a reading above 50 shows an increase. Panel members indicate changes in their organization’s activity over five broad categories: purchases, employment, inventories, supplier deliveries, and prices.9
Canada Mortgage and Housing Corporation (CMHC) issues a monthly report on the sixth working day of every month, showing the previous month’s new residential construction activity. The data is presented by region, province, census metropolitan area, and dwelling type (single-detached or multiple-unit). The indicator is an important gauge of the state of the Canadian housing market.10
This key indicator of housing activity is compiled by the Canadian Real Estate Association (CREA) and is based on the number of home sales processed through the MLS (Multiple Listing Service) Systems of real estate boards and associations in Canada. The monthly report from the CREA shows the change in home sales across Canada, as well as for major markets, from month to month. The report also includes other important housing-related information, such as the change (as a percentage) in newly listed homes, the national sales-to-new listings ratio, months of housing inventory, the change in the MLS Home Price Index, and the national average price for homes sold within the month.11
Statistics Canada releases a monthly report on retail sales activity across Canada, with changes shown on month-over-month and year-over-year bases. The headline number shows the percentage change in national retail sales on a dollar basis; the percentage change in volume terms is also shown. The retail sales figures are shown by industry and for each province or territory, and provide insights into Canadian consumer spending.12
The building permits survey conducted monthly by Statistics Canada collects data on the value of permits issued by Canadian municipalities for residential and non-residential buildings, as well as the number of residential dwellings authorized. Since building permit issuance is one of the very first steps in the process of construction, the aggregate building permits data are very useful as a leading indicator for assessing the state of the construction industry.13
The Bottom Line
The 12 economic indicators briefly described above show the health of key aspects of Canada’s economy: consumer spending, housing, manufacturing, employment, inflation, external trade, and economic growth. Taken together, they provide a comprehensive picture of the state of the Canadian economy.