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Stories Report on Business is following today:
Canada a debt 'sinner'
Canada has been winning kudos around the world for Ottawa's fiscal management, and how its handling of the books stands out among the world's leading economies. But in the eyes of Lausanne-based IMD, the country still ranks among its "sinners" in terms of total public debt, not just that at the federal level.
IMD Professor Stéphane Garelli, director of the World Competitiveness Center, says in a new "debt stress test" report that the large, established industrialized economies "will all suffer a debt curse" going forward.
"Nowadays, budget deficits are soaring and it is estimated that the average debt of the G20 nations, for example, will climb from 76 per cent of their combined GDP in 2007 to 106 per cent in 2010," his report says. "Although the 'great recession' is over, the consequences of the crisis will continue to be felt for quite some time."
His stress test estimates the length of time it will take countries to revert to a "bearable" level of public debt, or 60 per cent of GDP. He looks at several factors and finds that Japan, Italy, Portugal and the United States face the greatest challenges, with Japan potentially not getting its fiscal house in order until, in a worst case scenario, 2084. Italy is next at 2060, Portugal at 2037, Belgium at 2035 and the U.S. at 2033.
Iceland follows at 2032, Greece at 2031, France at 2029, and Germany and Britain at 2028. Canada comes next at 2025. He noted that 40 of the 58 countries in the IMD's World Competitiveness Yearbook don't have a debt problem, though some could not sink into debt because they have no collateral or credibility, while others are "simply virtuous."
The report notes that the "quality" of debt depends both on collateral and capacity to repay: "In short, countries such as Greece, Portugal and Spain have a credibility problem today not only because they have a debt crisis, but also because they lack the means to adequately repay (growth rate, current account balance, investments abroad, etc.). Other 'sinners' (mostly the large industrial nations) have less of a credibility problem: in their case debt is a cost that will limit their competitiveness and the purchasing power of their people."
IMD offers MBA, EMBA and other programs, among its other activities.
Canada boosts competitiveness ranking
Canada has moved up a notch in the IMD's annual report on global competitiveness. Singapore, Hong Kong and the United States ranked first, second and third, respectively, in the IMD World Competitiveness Yearbook, while Canada jumped to seventh spot from eighth last year.
"Special attention should be paid to the good performance of Canada ... which relies on sound banking regulations and extensive commodity resources," IMD said in an accompanying statement. Read the story
Markets calmer
Markets calmed today after yesterday's rout, with North American stocks rebounding by midday, despite the jitters in Europe, and the Canadian dollar rebounding.
Some observers had counted on markets turning around after Germany's parliament voted to approve its share of the $1-trillion euro zone bailout by the EU, the International Monetary Fund and the European Central bank.
Germany, in particular, spooked markets earlier in the week when it unveiled a surprise ban on naked short-selling of certain stocks, bonds and credit default swaps. While German Chancellor Angela Merkel said the ban was necessary to curb "destructive" behaviour in the markets, some observers wondered why Europe's largest economy took such a step. Other governments, such as France, also questioned the move.
"Investors are not being helped by the continued mixed messages coming out of Europe with Angela Merkel saying that the euro is in danger, while on the other hand Christine Lagarde, the French finance minister, [insists]that the euro is a credible currency, and not in any danger," said CMC Markets analyst Michael Hewson. "Well they can't both be right, so which is it? European leaders need to be sending a concerted united message and at no time during this crisis has this been the case."
Read: David Berman's Market Blog
Related: Merkel: Velvet Chancellor shows some iron
Inflation rate at 1.8 per cent
Overall consumer prices rose 1.8 per cent in April from a year earlier, picking up speed from the annual inflation rate of 1.4 per cent in March, Statistics Canada said today. The April rate was slightly higher than the 1.7 per cent economists expected.
The so-called core rate, which factors out volatile items and is the Bank of Canada's guide in setting monetary policy, rose to 1.9 per cent from 1.7 per cent. The rise in the core rate was largely due to higher prices for autos, auto insurance premiums, property taxes and restaurant food.
The inflation reading was higher than expected, and plays into whether Bank of Canada Governor Mark Carney will raise his benchmark lending rate when the central bank next meets June 1. Economists had largely expected he would boost the overnight rate from its historic low of 0.25 per cent, but that was before the recent turmoil in the markets, and some have changed their view.
"And so the plot thickens a bit further," said BMO Nesbitt Burns deputy chief economist Douglas Porter. "The Bank of Canada's interest rate decision at the start of June will be driven by a solid recovery to-date and some underlying inflation pressure on the one side, and global financial market instability on the other. The bank still has more than a week to decide, and today's uptick in core inflation simply muddies the waters. While the economic data continue to lean heavily to a rate hike, the decision will ultimately be driven by just how intense the financial storm becomes."
Added Scotia Capital economists Karen Cordes Woods and Derek Holt: "This print is compatible with a June 1 hike. Seasonally adjusted core inflation on a month-over-month basis broke through the [Bank of Canada's]target and restored the pattern of firm inflation readings."
Toronto-Dominion Bank economist Grant Bishop believes Mr. Carney could still wait a month despite the April showing on the consumer price index: "The uncertainty of global economic conditions, with recent volatility in equity and commodity markets, adds to the possibility of a continued pause by the bank in June. Despite this CPI report supporting tightening, recent market movements may then stay the bank's hand, waiting for July for an initial hike of interest rates."
Adding to Mr. Carney's dilemma is a separate report from Statistics Canada this morning showing shoppers were out in force in March, driving retail sales up 2.1 per cent. That was the sharpest increase in five years and far surpassed what economists had expected. The report adds to a string of readings that show Canada's economy quickly rebounding. Read the story
Related: Stock slide offers breathing room for borrowers
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How financial regulations could hit Wall Street
Some analysts believe the overhaul of financial regulations in the United States could slash earnings of big financial institutions by about 20 per cent. The U.S. Senate passed the sweeping bill last night and, while not yet a done deal, The Wall Street Journal noted that the Senate version of the regulations would hit Wall Street more than anticipated. While some observers don't expect a huge hit to Wall Street banks, but others believe the pain could be harsh, the newspaper said. Read the story
Japan holds line on rates
The Bank of Japan today held its benchmark rate steady at 0.1 per cent, where it has stood since the end of 2008, as it painted a brighter picture for the country's economy. The central bank also unveiled a loan plan for commercial banks. Bank of Japan Governor Masaaki Shirakawa said the world's second-largest economy must watch closely for the fallout from Europe's debt crisis but "we maintain the view that emerging economies will lead the global economy's recovery and that emerging economies will maintain strong growth based on domestic demand and the United States will continue to recover moderately."
Husky appoints new chief
Husky Energy Inc. named its new chief executive officer this morning, appointing Asim Ghosh to take over the helm at the beginning of next month. Mr. Ghosh is the former CEO of Vodafone Essar Ltd., a cellular phone group that Husky said grew under his leadership from a virtual startup in 1998 to one of the world's largest mobile companies by subscribers. Mr. Ghosh replaces John Lau, the Calgary-based energy company's long-time chief who is moving to Hong Kong to head up development of its Asia-Pacific operations.
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