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Economic Insight

Delving into the forces that shape our living standards
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Healthy economies need to ramp up public investment

ANDREW JACKSON

While Canada’s short-term economic prospects are pretty gloomy, longer-term projections are even worse. A major reason is that policy makers here and in all of the advanced industrial countries have been content to settle for a very slow recovery, which undermines our longer-term economic potential.

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With Greece debt deal, euro zone shows it does not negotiate – it dictates

ERIC REGULY

Imagine you are the prime minister of a European Union country perched on the edge of the 19-country euro zone. For years, you have been considering the merits of scrapping your own currency and adopting the euro. Taking the plunge would eliminate your monetary independence but thrust you into heart of world’s biggest trading area where you would be an equal among equals and enjoy the protection of its various crisis-fighting mechanisms.

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Oil price shock muddies Canada's economic waters

DAVID PARKINSON

If Canada’s latest economic indicators leave you with only a murky sense of the state of the economy, it’s because the winter’s messy oil spill is still clouding the waters.

Statistics Canada reported Friday that the year-over-year inflation rate for May was 0.9 per cent, up a hair from April’s 0.8 per cent but still a pretty depressed number – indeed, below the bottom of the Bank of Canada’s 1-to-3-per-cent target band that serves as its key guide for setting interest rates. On the other hand, the core inflation rate – which excludes gasoline as well as seven other highly volatile components of the consumer price index – was at 2.2 per cent, down only slightly from April’s 2.3 per cent, and has now been above the central bank’s 2-per-cent sweet spot for 10 straight months.

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Full engagement in the economy requires more than the basic necessities

Todd Hirsch

When economists and policy makers think about poverty, provisions of the necessities of life – food, clothing and shelter – are front and centre. Without reasonable nourishment, a shirt on your back and a place to live, it becomes difficult to actually stay alive.

But living is more than simply preventing death. Most Canadians want to fully participate in the 21st century economy and provide a better standard of living for themselves and their family. However, full engagement in the economy requires more than the basics of food, clothing and shelter. In 2015 there are three more essential elements: transportation, communication and community. Each comes with policy implications for government – especially those governments keen to address issues of urban poverty.

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Greece may be the problem child, but Europe has bigger problems

CARL MORTISHED

In this Greek melodrama, everyone is watching Angela Merkel and Alexis Tsipras, the German and Greek political leaders, seemingly racing their cars towards the edge of a cliff, daring each other to jump out first. The face-down is fascinating but if you wanted to know why it is happening you would do better to watch the other euro zone leaders, shuffling in silent embarrassment. They know that Greece is just a prelude to a long-delayed reckoning over how Europe will pay for its overburdened and over-indebted welfare states.

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Still defiant? All eyes on Putin at economic forum

Eric Reguly

When the Russian President takes to the stage Friday at his showpiece conference, the St. Petersburg International Economic Forum, the Russian and foreign business leaders in the audience will have one big question: Will he signal a rapprochement with the West for the sake of the Russian economy or remain defiant?

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U.S. Fed still not raising interest rates, despite anticipation

DAVID PARKINSON

The U.S. central bank is still inching toward its first interest-rate increase in nearly a decade, and it’s still likely coming this year. But after looking like it was speeding toward rate hikes as recently as a few months ago, the countdown to rate liftoff has turned glacial.

The U.S. Federal Reserve Board’s latest regularly scheduled interest-rate decision statement, released Wednesday, was a remarkable non-event, considering the anticipation. No change to its key federal funds rate (which has sat at a range of zero to 0.25 per cent since late 2008), and no hint that the Fed is any closer to triggering its highly anticipated first rate hike. Only a handful of words were changed from the Fed’s previous statement in April, none of them particularly meaningful. The Fed informed us of some modest improvements in the U.S. economy after a bleak first quarter, but otherwise it stuck to its policy guns word for word.

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Productivity: A missing plank in federal election platforms

Glen Hodgson

The federal election campaign is on and the political parties are busy rolling out their platforms. But there is one topic that is unlikely to be mentioned by our political leaders: Canada’s dismal track record on productivity – and what we might do about it.

For nearly three decades, growth in Canadian productivity (at its simplest, output measured in dollars per hour worked) has lagged behind productivity growth in the United States and other major industrial countries. This productivity gap, and its root causes, have been well documented in research by the Conference Board of Canada over the years. The result of lagging productivity growth is a significant gap in per capita income that has opened up between Canadians and Americans – estimated at $7,000 per capita, and rising.

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The sweet business of money transfers: Banks are losing out

ERIC REGULY

It is one of the hottest sectors in the global financial markets but rarely gets much attention: remittances.

Remittances are the small amounts of money that migrants in the rich world send to their families in the poor world – typically $200 (U.S.) a month. Until a few years ago, the remittances flow was either not measured or was measured poorly. That’s changing and the numbers associated with the market are astounding.

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Canada’s household debt stable, but overall outlook still dim

DAVID PARKINSON

If you’re worried about Canada’s household debt burden, the latest figures from Statistics Canada won’t do much to soothe your furrowed brow.

Statistics Canada’s quarterly National Balance Sheet and Financial Flow Accounts report – which covers the financial state of the country on a household, corporate and government level – showed that the closely watched household credit-market-debt-to-disposable-income ratio ticked down ever so slightly in the first quarter, to 163.3 per cent from a record 163.6 per cent in the fourth quarter.

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This is just the beginning for ‘sharing economy’ services

BRIAN LEE CROWLEY

So-called “sharing economy” services like Uber and Lyft are just giving us a foretaste of how disruptive technologies will transform the way we get around. Moreover, contrary to what you might have heard, that transformation will not stop with the destruction of the old-style taxi industry. Uber may be worth US$40-billion. That means the market sees Uber and its competitors as achieving far more than this.

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Canada’s carbon emissions cutting may be too late

CARL MORTISHED

In the end, it may not matter whether Canada signs up to tougher curbs on carbon emissions. The world is moving on, at accelerating speed, toward a world that is less energy-hungry, less polluting, more efficient and more renewable.

The evidence lies in the extraordinary story of 2014, to be found in BP’s annual statistical review of world energy. Every year the British oil company does a tally of how many gigawatts we produced, how many barrels we pumped and how many tonnes we burned. The statistics provide the data for the extraordinary tale of American shale and how it pulled the rug from under the oil price. Much more interesting, however, is what BP says is happening around the edges of the big picture. Carbon emissions increased last year by just 0.5 per cent, the slowest rate for 15 years. The reason is weak growth in energy demand, particularly in China where energy intensity is falling rapidly.

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Guarded Poloz leaves more questions unanswered as oil shock continues

DAVID PARKINSON

Stephen Poloz is doing his best to stay tight-lipped about his economic outlook at the moment. But what little he is saying speaks volumes about what’s bothering him about Canada’s uncertain economy, as it closes in on the halfway point of what has so far been a trying year.

The Bank of Canada Governor’s press conference Thursday, in conjunction with the release of the central bank’s twice-yearly Financial System Review, contained precious little for the pleading hordes hungry for new insight into how the country’s oil-shocked economy is unfolding. Mr. Poloz bobbed and weaved around reporters’ economic questions, while repeatedly stating that he’s not making any new forecasts until the bank’s next official outlook in its quarterly Monetary Policy Report in mid-July.

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Addressing inequality will take much more than tax code tinkering

ANDREW JACKSON

Andrew Jackson is an adjunct research professor in the Institute of Political Economy at Carleton University and senior policy adviser to the Broadbent Institute.

The issue of how to deal with rising inequality and the squeezed middle class has recently moved to the centre of political debate, with the various parties proposing significant policy changes. International experience suggests that a more equal Canada will require major changes to a wide range of policy levers and not just to the tax and transfer system.

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B.C. climbs out of commodity slump with U.S. export boom

DAVID PARKINSON

British Columbians have long been known for dancing to their own tune. And now, that can be said for the province’s economy, too. In Canada’s new version of a two-speed recovery, the West Coast is zooming off on its own.

The simplified story of Canada’s split-personality economy, for the longest time, was that resource-rich Alberta (and, to a lesser extent, the entire West) was thriving amid booming commodity prices, while the country’s industrial-manufacturing heartland of Ontario and Quebec (and, for geographic convenience, everything east of that) suffered amid slumping export demand and an unhelpfully pumped-up Canadian dollar.

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Canada’s ‘atrocious’ growth figures show potential risk of recession

CLÉMENT GIGNAC

Last week brought us the latest edition of the OECD’s twice-yearly analysis of the global economy, so this is a good time to take a step back and assess the economic landscape. At the same time, we will reassess our view of the Canadian economy, in particular, following the publication of what Bank of Canada Governor Stephen Poloz deemed the country’s “atrocious” growth figures in the first quarter.

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Seeds of tempered forecast sown before oil’s crash

JEFFREY JONES

The oil industry’s main lobby group garnered double takes from energy buffs everywhere by slashing its long-term forecast for crude output by 17 per cent.

No wonder. A 1.1-million-barrel-a-day drop in previously expected output 15 years out is dramatic, being equal to nearly a third of Canada’s total production today.

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Signs of better times ahead for Ukraine’s economy

BRIAN MILNER

Ever since Russian President Vladimir Putin decided to make Ukraine pay for having the temerity to oust a corrupt Moscow stooge from its presidency early last year, the country’s economic outlook has veered between bleak and hopeless. Yet flashes of light have been breaking through the gloom, signalling that better times may lie ahead.

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We’re not on a hiring spree, but labour market isn’t in dire straits, either

DAVID PARKINSON

Let’s acknowledge the obvious: Canada’s May employment report was very good. But one month does not make a trend – especially when we’re talking about Statistics Canada’s Labour Force Survey. When we look at the past six months – which, besides being a round-ish number, also captures the bulk of the oil price shock – we see a labour market that is moving at a snail’s pace, but at least in an encouraging direction.

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The three major risks facing Alberta’s petroleum sector

Todd Hirsch

When I was a child in the 1970s, a cloud of doom hung over our heads in Alberta. One day, the adults told us in solemn tones, the province will run out of oil. This was the rationale for Peter Lougheed setting up of the Heritage Savings and Trust Fund.

Now we know that Alberta will never, ever run out of molecules of oil in the ground. But new clouds of doom lurk on the horizon. The problem for Alberta isn’t its shrinking volume of oil. It’s more complicated than that.

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Canada's balanced budget fetish is killing the economy

KEVIN CARMICHAEL

The Globe and Mail’s David Parkinson wrote Wednesday that the latest trade numbers put Bank of Canada Governor Stephen Poloz in a spot. Indeed. The figures are terrible – some might even say atrocious. The central bank’s forecasts for economic growth are beginning to look optimistic – that could prompt a change in monetary policy.

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Why the Saudis will continue to undercut oil prices

CARL MORTISHED

The Saudi export strategy is becoming cruder by the day and if you are following the message trail left by Ali al Naimi, the oil minister, it can be put simply: Dump the lot while they are still buying our product.

This begs the question why the minister is still attending OPEC meetings. At a climate conference in Paris last month, Mr. Al-Naimi was bragging that the Kingdom would, in the not too distant future, be exporting gigawatts of solar power. Fossil fuels, on the other hand, were approaching their sell-by date. “I don’t know when – 2040, 2050 or thereafter. So we have embarked on a program to develop solar energy,” he said.

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Sudden bond selloff signals a turbulent future for debt market

BRIAN MILNER

If this week’s wild debt-market ride offers any indication of what’s to come, bond investors ought to steel themselves for an unusually turbulent second half of the year.

A global bond sell-off under way for weeks briefly turned into a rout, as panicked investors dumped triple-A-rated German bunds, U.S. Treasuries and other government debt, before abruptly reversing course Thursday afternoon. And analysts say such instability is bound to become a regular feature of a once-complacent market as concerns mount about everything from a Greek default and mispriced risk to a lack of liquidity, amid other distortions stemming from aggressive monetary easing combined with continued weakness in key economies.

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Poor trade data contradict Bank of Canada’s optimism

DAVID PARKINSON

Canada’s latest trade numbers don’t speak well for pretty much anything. But they look especially damaging to the Bank of Canada’s vision of when – and, even more importantly, how – the economy will get back to full speed.

The merchandise trade report released by Statistics Canada on Wednesday was, in a word, grim. The April trade deficit of $2.97-billion was the second-biggest on record – trailing only the March deficit, which was revised to $3.85-billion from the originally reported $3.02-billion. That’s a $6.8-billion trade hole in just two months; for the year to date, the cumulative trade deficit is nearly $11-billion.

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Canada leans on its expertise in advance of major sporting events

Glen Hodgson

The hype is now building for two big sporting events in Canada this summer.

First up, venues across the country will host the FIFA Women’s World Cup this month. Then later this summer, Toronto will host the Pan American/Parapan American Games, with events at various sites across southern Ontario. All too often, nations – and more specifically cities – have an economic letdown in the months after hosting international sporting events. But don’t expect Toronto to suffer from the post-games blues.

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Revenue reality sinks in for Notley as victory fades

JEFFREY JONES

Back before all that Alberta election hubbub, the province had a revenue problem.

Remember? It was because the price of oil had collapsed and the energy sector, which had provided the provincial purse with a fifth of its intake, went about slashing spending.

Now that the glow of the NDP’s historic victory is starting to dissipate and government has begun hammering out policies, key stats are showing that Alberta’s revenue woes are still far from over.

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TransAlta CEO hopes NDP takes different course on coal phase-out

RICHARD BLACKWELL

Alberta’s new government should be cautious about accelerating the decline of coal-fired electricity generation because it will have a damaging effect on employment, the head of the province’s biggest investor-owned utility says.

Dawn Farrell, the chief executive officer of TransAlta Corp., told an energy conference in Toronto Tuesday that her firm and other coal-fired power producers are already on track to cut coal production and it is important that the new NDP government fully understands the implications before speeding things up.

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Where 1,000 economists reach the same conclusion

CHRISTOPHER RAGAN

After teaching economics at McGill University for 26 years, I sometimes wonder whether academic economists are heading off in the wrong direction – spending too much time with theoretical abstraction and not enough time understanding the historical and institutional richness of the actual economy that surrounds us. But after spending a long weekend with more than 1,000 colleagues – hardly your normal sleepover – I also have to admit that I’m very proud to be a member of that community.

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U.S. faces sunnier employment outlook than Canada as oil fallout is felt

BRIAN MILNER

Economy watchers will zero in on unemployment this week as they hunt for more clues about the uncertain direction of the Canadian, U.S. and key euro-zone economies.

The big question in Canada is how much damage is being wrought in the broader economy by the steep slide in oil prices and the accompanying rapid decline in investment. In the United States, analysts will be looking for evidence that the economy’s stumble into negative territory in the first quarter was a weather-related fluke rather than the beginning of the end for the still fragile recovery.

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