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ATB sees ‘strong rebound’ for Alberta’s economy, but headwinds persist – Calgary Herald

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Economic growth numbers for Alberta that would normally signal a bullish recovery are being dampened by a gauntlet of fiscal hurdles, says a forecast by ATB Financial.

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The provincial Crown corporation predicts the province’s economy will expand by 6.3 per cent in 2021 and four per cent in the coming year.

But those figures reflect a provincial economy that has further to catch up than other provinces amid the pandemic and an earlier downturn, says ATB, and one whose GDP likely won’t return to pre-pandemic levels until 2023.

Although Alberta’s growth is likely the highest in the country this year, it’s being reined in by COVID-19’s stubborn effect, exploding inflation and supply chain problems, ATB said.

“It’s a really strong rebound but we did lose the most ground in Canada in 2020, so we’re filling back a hole,” said Rob Roach, deputy chief economist for ATB Financial.

Higher energy values, including a benchmark U.S. oil price of nearly US$80 a barrel is helpful, but it’s not generating investment into new production like it has in the past, he said.

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And supply chain problems worsened last week by major storms in B.C. are another hurdle for both imports and exports, said Roach.

“We kind of baked that into our forecast. It continues to be a disruption but hopefully that’ll start to sort itself out,” he said.

While acknowledging one industry forecast is predicting a 27 per cent increase in oil and gas drilling next year over 2021, the owner of one small Calgary-based contractor takes a dimmer view of what lies ahead.

“We’re up from a year ago, for sure, but the phone lines haven’t been lighting up,” said Brian Krausert of Beaver Drilling.

“It’s going to be a slow recovery . . . it’s still a struggle right now.”

He said a dearth of investment, with larger companies using a stronger cash flow from higher energy prices to pay down debt and buy back stocks, is hindering smaller operators such as his.

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A labour shortage fuelled by the uncertainties of a boom and bust economy are another roadblock, said Krausert.

“After a year of sitting around home, you’re seeing people going back home to places like Newfoundland. Sure, you’ll be paid less but you’ll have more reliability of income,” he said.

Only two of his company’s seven drilling rigs are operating, said Krausert, one of them a reflection of the transition to alternative energy.

“We’ve got a rig working on hydrogen right now,” he said, adding that kind of extraction poses logistical challenges.

A Calgary steel supplier is feeling the pinch of distribution bottlenecks and the pains of an evolving economy, said its manager.

“These supply chain issues will go on for a while — last April I was guessing they’d be gone by the fall but they’re in a worse situation now,” said Dan Sekhon of Professional Pipe and Steel Sales.

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The company used to sell more pipe to the energy sector, but that’s gradually dried up, he said.

“Now people import the steel,” said Sekhon, adding the 50-year-old business continues to soldier on with sales to the construction industry.

“Business is never coming back to the way it used to be — we have to temper our expectations.”

ATB Financial says the recovery’s been unequal, with sectors such as the hospitality industry coming back slowly after being hit harder, while others such as retail and cannabis have proven stronger than before the pandemic.

Alberta’s biggest cannabis retailer, High Tide, opened 17 stores in Alberta this year and is looking forward to further growth, aided by newly announced provincial policies allowing for home delivery and the sale of branded items, said company spokesman Omar Khan.

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“Cannabis is a big contributor to the Alberta economy and the Alberta government has realized that,” said Khan.

Since late September 2020, nearly 200 new cannabis stores have been approved in Alberta, bringing the total to 721.

Inflation, which at more than four per cent is now at its highest point in 18 years, is proving another drag on the province’s economic recovery by hurting consumer spending and upping interest rates, said ATB’s Roach.

“It raises the cost of doing business and it just creates uncertainty,” he said.

Food banks in the province have reported massive increases in use over the past year and Roach pointed to a stubbornly high provincial unemployment rate of 7.6 per cent.

Two months ago, TD Economics predicted the province’s economy would grow by 4.6 per cent next year and 3.8 per cent in 2023, a forecast tempered by the pandemic’s fourth wave that’s since receded.

One of the strengths driving that is momentum in Alberta’s housing sector, said the think-tank.

“Alberta has seen a solid revival in housing activity this year, with home resales expected to rise at the strongest pace in the country. Housing starts are also coming in strong, providing a boost to the construction industry,” said TD Economics.

BKaufmann@postmedia.com

Twitter: @BillKaufmannjrn

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China cuts reserve requirement ratio as economy slows – BNN

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China cut the amount of cash most banks must hold in reserve, acting to counter the economic slowdown in a move that puts the central bank on a different policy path than many of its peers.

The People’s Bank of China will reduce the reserve requirement ratio by 0.5 percentage point for most banks on Dec. 15, releasing 1.2 trillion yuan (US$188 billion) of liquidity, according to a statement published Monday. 

The reduction was signaled by Premier Li Keqiang last week when he said that authorities would cut the RRR at an appropriate time to help smaller companies, and is the second reduction this year. The decision comes after recent data showed the economy and industry stabilizing, although Beijing’s tightening curbs on the property market have led to a slump in construction and worsened a liquidity crisis at developer China Evergrande Group and other real-estate firms. 

The cut is a “regular monetary policy action,” the PBOC said, pre-empting expectations that the decision was the start of of an easing cycle. “Prudent monetary policy direction has not changed,” it said, adding that the bank “will continue with a normal monetary policy, maintaining the stability, consistency and sustainability of policy, and won’t flood the economy with stimulus.”

However, with the U.S. Federal Reserve and other global central banks looking to tighten policy, the move to add stimulus by the PBOC makes the divergence between China and much of the rest of the world even clearer. 

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What Bloomberg’s Economists Say

“We think the reduction would help offset the headwinds facing the economy, particularly in the first quarter of 2022. We maintain our view that an additional 50-100 basis points of RRR cut would come next year.”

– David Qu, economist

Separately, the Communist Party’s Politburo said China will continue to implement a proactive fiscal policy in 2022, and prudent monetary policy will be flexible and appropriate, and maintain reasonably ample liquidity, the official Xinhua News Agency. The Monday meeting of the Politburo will be followed by the Central Economic Work Conference sometime this month, which will flesh out economic policy plans for the next year. 

The cut will be applied to all banks except those that are already on the lowest level of 5 per cent, which are mostly small rural banks, according to the statement. The weighted average ratio for financial institutions will be 8.4 per cent after the cut, down from 8.9 per cent previously, the PBOC said in a separate statement.

Some of the money released by the RRR cut will be used by banks to repay maturing loans from the PBOC’s medium-term lending facility, and some of it will be used to replenish financial institutions’ long-term capital, the central bank said. There are almost 1 trillion yuan worth of the 1-year loans maturing on Dec. 15, the day the cut takes effect. 

Even with the deepening housing market slump, authorities had been restrained in adding new support policies, holding monetary policy steady and maintaining a measured pace of fiscal spending. However, the PBOC signaled an easing bias in the latest monetary policy report last month, while the State Council urged local governments to speed up spending. 

“The aim of the RRR cut is to strengthen cross-cyclical adjustment, enhance the capital structure of financial institutions, raise financial services capabilities to better support the real economy,” the PBOC said. The cut will effectively increase long-term capital for banks to serve the real economy, and the PBOC will guide banks to step up their support for small businesses, it said. 

A cut in the reserve ratio doesn’t directly lower borrowing costs, but quickly frees up cheap funds for banks to lend. The reduction will lower the capital cost for financial institutions by about 15 billion yuan each year, which will lower the overall financing cost of the economy, the PBOC said.

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China think-tank warns of economic slowdown – Aljazeera.com

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Advisers to Beijing will recommend a 2022 growth target that’s lower than the target that had been set for 2021.

Ongoing stress in China’s property sector is likely to slow down the country’s economic growth next year, a government think-tank has warned.

The world’s second-largest economy is expected to have expanded by about 8 percent this year, according to the annual blue book on the economy from the Chinese Academy of Social Sciences (CASS), a top government think-tank. It warned that the property downturn was likely to persist and weigh on the expenditures of local governments next year.

China’s economy is expected to grow about 5.3 percent in 2022, bringing the average annual growth rate forecast for 2020-2022 to 5.2 percent, CASS said on Monday.

Advisers to the government will recommend that authorities set a 2022 economic growth target lower than the target set for 2021 – or “above 6 percent” – Reuters reported, amid growing headwinds from a property downturn, weakening exports and strict COVID-19 curbs that have impeded consumption.

It urged the central government to proactively engineer a soft landing for the property sector, to avoid failed land auctions in big cities and to fend off risks of quickly falling property prices in smaller cities, the report said.

China’s move to wean property developers away from rampant borrowing has translated into loan losses for banks and pain in credit markets, as cash-strapped builders fall into distress, increasing risks across the economy.

Property behemoth China Evergrande is facing one of the country’s largest defaults, prompting the authorities to step in and oversee risk management at the company.

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Canadian employers, facing labor shortage, accommodate the unvaccinated

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Canada’s tight labor market is forcing many companies to offer regular COVID-19 testing over vaccine mandates, while others are reversing previously announced inoculation requirements even as Omicron variant cases rise.

Canadian Prime Minister Justin Trudeau’s government adopted one of the strictest inoculation policies in the world for civil servants and has already put more than 1,000 workers on unpaid leave, with thousands more at risk.

Airlines, police forces, school boards and even Canada’s Big Five banks https://www.reuters.com/world/americas/canadas-major-banks-require-employees-entering-premises-be-vaccinated-2021-08-20 have also pledged strict mandatory vaccine policies. But following through has proven less straightforward, especially as employers grapple with staffing shortages and workers demand exemptions.

Job vacancies in Canada have doubled so far this year, official data shows, and vaccine mandates can make filling those jobs harder, potentially putting upward pressure on wages. That could fuel inflation https://www.reuters.com/world/americas/canadas-annual-inflation-rate-hits-47-oct-highest-since-feb-2003-2021-11-17, already running at a near two-decade high.

“It’s already difficult to find staff, let alone putting in a vaccine mandate. You’d cut out potentially another 20%” of potential workers, said Dan Kelly, chief executive of the Canadian Federation of Independent Business.

There are pitfalls to employing the unvaccinated. Companies run a higher risk of COVID-19 outbreaks and many vaccinated employees are uncomfortable working with those who have not had the jab, said industry groups and marketing experts.

At Luda Foods, a Montreal-based soup and sauce maker, president Robert Eiser said he has 14 open jobs, no vaccine mandate and no plans to restrict new hires to the vaccinated.

“I don’t know that I want to reduce the (labor) pool, which is already quite low,” said Eiser. “We need to attract people to meet the demand. If we don’t, our competitors will.”

Data released on Friday underpinned Canada’s tight labor market, with a hefty 153,700 jobs https://www.reuters.com/markets/us/canada-posts-hefty-job-gains-outlook-clouded-by-omicron-variant-2021-12-03 added in November. It also showed a growing mismatch between available workers and unfilled jobs. And job postings are far above pre-pandemic levels. (Graphic: Canada job postings surge above pre-pandemic level Canada job postings surge above pre-pandemic level, https://graphics.reuters.com/HEALTH-CORONAVIRUS/CANADA2/klvyknzklvg/chart.png)

WALKING BACK

The province of Quebec backtracked on a vaccine mandates for healthcare workers last month, saying they could not afford to lose thousands of unvaccinated staff. Ontario, which was also eyeing a mandate, said it would not go ahead.

Toronto-Dominion Bank and Bank of Montreal have both softened their vaccine policy to allow regular testing for workers who missed their Oct. 31 inoculation deadline.

In Canada, 86% of adults are fully inoculated, though that drops under 80% among 18-40 year olds. At least 15 cases of the new Omicron https://www.reuters.com/markets/rates-bonds/canada-has-reported-total-11-cases-omicron-variant-health-official-2021-12-03 variant in Canada have been reported in the past week.

John Cappelli, vice president of onsite managed services in Canada for global recruitment firm Adecco, said half of his clients are mandating vaccines with the other half allowing regular testing for the unvaccinated.

But he expects the Omicron variant will prompt more workplaces to get strict on vaccination, even as they grapple with the tightest job market he’s seen in his 25-year career.

“We are now starting to see our first workplace (COVID-19) cases in five months,” he said.

The number of Canadian job postings on search website Indeed mentioning vaccine requirements has quadrupled since August. (Graphic: Canada job postings and vaccine mandates, https://graphics.reuters.com/HEALTH-CORONAVIRUS/CANADA3/byvrjqrlmve/chart.png)

In the hard-hit manufacturing sector, where 77% of firms say their top concern is attracting and retaining workers, vaccine mandates are more rare.

Dennis Darby, CEO of Canadian Manufacturers and Exporters, said most of Canada’s factories have operated safely throughout the pandemic. While CME encourages vaccination, “some companies are still using rapid testing if somebody doesn’t want to get vaccinated,” he added.

But companies risk a hit to their reputation if they are overt in efforts to tap into the unvaccinated as a labor pool, said Wojtek Dabrowski, managing partner at Provident Communications.

“If you go out and say, ‘We are intentionally seeking to hire unvaccinated people,’ many customers are equating that with you being anti-science and anti-safety,” said Dabrowski.

 

(Reporting by Julie Gordon and Steve Scherer in Ottawa, additional reporting by Rod Nickel in Winnipeg and Nichola Saminather in Toronto; Editing by Alistair Bell)

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