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Canada may skirt housing dip (if we’re lucky): Société Générale Add to ...

These are stories Report on Business is following Tuesday, Nov. 25, 2014.

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Oil and houses
Given everything playing out across global economies, Canada may skirt a contraction in its “highly leveraged” housing market, a major European bank says.

That nugget is contained in a report by Société Générale on the global ramifications of lower crude prices, and what could happen if oil tumbles even more.

You get to the conclusion in a roundabout way, but the idea is that lower oil prices mean more spending money for Americans, which is good news for Canadians given their proximity to, and large trading relationship with, the United States.

“Canada should benefit from its proximity to the U.S. which should help to compensate for the decline in its commodity sector,” senior foreign exchange strategist Sébastien Galy said in the report.

“If it is lucky it could perhaps avoid a contraction in its highly leveraged housing sector.”

Lower oil prices would also allow both the Federal Reserve and the Bank of Canada to hold their benchmark interest rates lower for longer.

“Canada should benefit from a stronger U.S. consumer as falling oil prices release disposable income in the U.S. but also in Canada,” Mr. Galy added in an e-mail exchange.

“This may well compensate the slowdown in the Canadian energy sector which will be only marginally felt in 2015 but increasingly afterwards as energy projects are delayed,” he said.

“The Canadian housing market had partly benefited from the expansion of the oil sector (e.g. Calgary and Toronto as the financial intermediary). With a relatively easy monetary stance courtesy of lower headline pressures and better exports to the U.S., the Canadian housing market may prove more resilient than expected to a sharp correction in the oil sector.”

Canadian economists don’t expect the housing market to crash, but they generally forecast a modest pullback. As The Globe and Mail’s Richard Blackwell reports, Canada Mortgage and Housing Corp. added to that yesterday in a report suggesting the market is only “modestly” overvalued.

Separately, a survey of forecasters by Reuters today suggests home price gains will slow next year, along with construction. Most of the observers said that Canadian home prices are inflated, but will nonetheless end this year with increases topping 5 per cent.

OECD sees faster rate hike
Many economists believe the Bank of Canada is going to sit on its hands for some time yet, but the OECD expects Governor Stephen Poloz and his colleagues to move a bit faster.

As our economics writer David Parkinson reports, the Organization for Economic Co-operation and Development projects the central bank will begin hiking its benchmark overnight rate next spring.

That’s about six months before many other observers expect.

After that first hike, the OECD said in a report today, it expects rates will climb “steadily thereafter.”

U.S. growth up
The U.S. economy is even stronger than previously believed, highlighting yet again the divergence between America and the laggards like Europe.

The U.S. Commerce Department today revised up its prior estimate of third-quarter economic growth, to 3.9 per cent, annualized, from 3.5 per cent.

That follows second-quarter growth in gross domestic product of 4.6 per cent.

“The bottom line is that the U.S. recovery is firmly on track,” said senior economist James Marple of Toronto-Dominion Bank.

“Driven by strengthening consumer spending and business investment, domestic demand is likely to accelerate to above 3 per cent over the next year,” he added.

“While net exports will subtract from growth, it will not be enough to prevent the economy from accelerating.”

Reitmans ends Smart Set
Reitmans (Canada) Ltd. is closing its Smart Set operation over the next year to 18 months, switching some stores over and shutting down others.

The decision to close the 107 outlets, which account for some 10 per cent of its sales, is part of a program to “enhance profitability,” the retailer said today.

Reitmans said it will convert 76 shops to other brands and close 31.

Sales rise
Canadian shoppers were out in force at car lots in September.

Retail sales climbed 0.8 per cent in the month, according to Statistics Canada today, a faster pace than expected by economists.

But it wasn’t quite as strong as it appeared: Five of 11 sectors measured, accounting for just 59 per cent of all retail sales, chalked up gains.

And if you strip out cars and parts, they were actually little changed.

“With the retail results, the overall picture for September is good, with a trifecta of volume gains in retailing, wholesaling and manufacturing, enough in our view to prop up Canada’s GDP (+0.4 per cent in our view),” said senior economist Krishen Rangasamy of National Bank.

“But given the slow start to the quarter, Q3 growth should soften to around 2.2 per cent annualized after a hot second quarter,” he added.

“We think that part of the reason for the slower growth is consumption spending. Note that retail volumes, despite September’s solid gains, grew at 5 per cent annualized versus +7 per cent in Q2.”

Central bankers get raise
If you’re a central banker bent on driving up inflation, where’s the best place to start?

In Tokyo, it’s with yourself.

Bank of Japan Governor Haruhiko Kuroda’s pay is being hiked to the equivalent of almost $300,000 (U.S.), Bloomberg reports, while others at the central bank are also getting raises.

Note that it’s the first raise for the governor in nine years, and that part of the government’s plan to juice the Japanese economy calls for pay hikes at the corporate level, too.

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