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Stormy clouds move in over the Peace Tower on Sunday. (Adrian Wyld / The Canadian Press) (Adrian Wyld/Adrian Wyld / The Canadian Press)
Stormy clouds move in over the Peace Tower on Sunday. (Adrian Wyld / The Canadian Press) (Adrian Wyld/Adrian Wyld / The Canadian Press)

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Canada's economy doesn't look so bullet-proof any more Add to ...

These are stories Report on Business is following Wednesday, Aug. 17. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Canada's economy not so bullet-proof? It's a given now that Canada's economy had a generally lousy second quarter, possibly even suffering a contraction, based on various indicators such as exports and manufacturing.

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What we don't know, of course, is how the third quarter's shaping up, though the early signs are positive, notes Avery Shenfeld, the chief economist at CIBC World Markets.

Other than employment, which is strong, we haven't seen any third-quarter data from Canada yet, though April's GDP was flat and May brought an outright decline. Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have warned of headwinds from global developments, but the weak readings have picked up of late.

But, Mr. Shenfeld said, more recent readings from the U.S., such industrial production and retail sales, have been better, and, thus, could be better news from Canada.

"We've had a dip now, so you need this third quarter to be positive or you're in a recession," Mr. Shenfeld said, referring to expectations that the next quarterly reading of the economy could show that the GDP dipped in the April-June period.

But based on the earliest readings from the U.S., that doesn't appear likely at this point, he stressed.

Economists are taking a dimmer view of Canada, talk of stimulus is picking up, and the Commons Finance Committee wants to hear from Mr. Flaherty and Mr. Carney. Concerns are clearly on the rise.

"Canada's finance minister says that Ottawa will contemplate deficit-financed fiscal stimulus if the economy contracts," noted Carl Weinberg, chief economist at High Frequency Economics.

"Frankly speaking, Canada - with the lowest federal debt burden of any G7 or G20 nation - can afford some deficit spending to create jobs. However, markets are not going to like the idea of any government borrowing money for any reason in this new anti-Keynesian environment that has engulfed the world."

Merkel-Sarkozy plans fail to impress Investors feel they've been let down by the meeting of the minds in the euro zone yesterday.

Germany's Angela Merkel and France's Nicolas Sarkozy met at what was expected to be a key discussion on how to solve the debt crisis in the 17-member monetary union. They proposed a euro economic council, constituionally-guaranteed deficit control, and a financial tax.

Beyond what markets had hoped for - a bigger rescue fund for ailing governments, and a move toward a common euro bond - the tax proposal isn't gaining many friends.

Germany's banks and Ireland's finance minister are already dismissing it, Reuters reports today, and the shares of stock exchange companies have slipped.

The EU is now looking at drafting a plan it can present to a G20 summit later this year.

"This is something no one - other than euroland politicians - wants to see," said Carl Weinberg, chief economist at High Frequency Economics.

"If euroland institutions have to pay a transactions tax, all financial market actors will exit Europe for places where taxes are not imposed on their businesses," he said in a research note.

"Hello Asia? London? New York? Toronto? In any case, we are hard pressed to see how such a tax will help fix euroland's sovereign debt problem, unless it is so egregiously high that it might raise government revenue substantially. Traders do not like this kind of talk, even on a lazy summer afternoon."

Can't keep a good franc down The Swiss National Bank took fresh measures to try to hold down its soaring franc, but the move failed because markets had been expecting a possible currency peg.

The central bank said it would increase the sight deposits of banks, basically flooding the market with money, but the currency still strengthened.

"Standing back from short-term market expectations, the SNB’s decision not to announce a formal exchange rate target (... peg, crawling peg, floor, whatever form it might have taken) is entirely sensible," said Adam Cole, global chief of foreign exchange strategy at RBC in London.

"Firstly, what incentive does the central bank have to reveal its objective to the market? Doing so would simply give the market a target to aim for and the SNB would likely find itself in immediate fight to defend whatever arbitrary level it declared it was targeting. Secondly, making the case for an exchange rate target as a medium term policy objective would be extremely difficult."

Austerity, Italian style Europe's debt crisis has reached the point of Italian politicians fighting with the country's soccer players.

A new austerity measure, dubbed the solidarity tax, is being slapped on higher-income earners as the government, like others in the euro zone, fights to bring down its deficit. Italy's soccer teams want the players to pay the tax; these have already threatened a strike over a contract-renewal dispute.

According to The Associated Press, Gazzetta dello Sport pegs the cost to Serie A teams at more than $70-million (U.S.). Zlatan Ibrahimovic of AC Milan, for example, earns an estimated $13-million each season.

Only in major league sports can things break down into such childish behaviour. Cabinet member Roberto Calderoli, minister of the oddly named department of Legislative Simplification, cited just that behaviour when he said that "I don't know if the solidarity tax is fair or not, but if anybody should pay it, the players should - they represent a caste of spoiled people."

But clearly not averse to such behaviour himself, he then threatened to double the tax on the players.

Bombardier strikes Russian deal Bombardier Inc. has landed a Russian customer for its new C Series narrow bodied airplane, The Globe and Mail's Greg Keenan reports today.

Ilyushin Finance Co., an airplane leasing company, has signed a letter of intent to purchase 10 of the planes and has taken options on another 10. It has also taken up purchase rights on another 10 C Series planes.

Fairfax buys Ashley Fairfax Financial Holdings Ltd. is going into the wedding registry and fine china business.

Fairfax announced late yesterday it has acquired Toronto's William Ashley China, a luxury retailer that's known for its wedding registry. Fairfax is buying the retailer from the Stark family, which has owned Ashley for more than half a century.

"This acquisition is consistent with our interest in acquiring businesses from entrepreneurial founders who want to find a long term home for their business,” said Fairfax's CEO Prem Watsa.

(Just last month, Fairfax pumped money into Bank of Ireland. Ireland, of course, is known for its Belleek China and Waterford Crystal, though it's not actually produced there any longer.)

SABMiller goes hostile SABMiller PLC is putting its $10-billion (U.S.) bid for Australia's Foster's Group Ltd. to shareholders, having been rebuffed by its takeover target's board.

“As there has been no willingness to engage in relation to SABMiller’s proposal on the part of the Foster’s board, SABMiller has decided to make an offer to Foster’s shareholders directly," the brewer said today.

Fun, and not so much fun, for Abercrombie & Fitch Ambercrombie & Fitch Co. is having a little fun today with the cast of MTV's Jersey Shore. With its own quarterly results and outlook, and the reaction on its stock price, though, not so much fun.

The teen retailer said in a statement today that it was offering a "win-win situation" to Michael 'The Situation' Sorrentino, one of the stars of the raunchy reality TV show. A&F said it will pay him, and other cast members, to stop wearing its clothes.

"We understand that the show is for entertainment purposes, but believe this association is contrary to the aspirational nature of our brand, and may be distressing to many of our fans," A&F said.

That was just the pre-show warm-up. The retailer beat expectations for its second-quarter results, but still disappointed investors by signalling economic uncertainty and announcing plans to close between 60 and 65 U.S. stores.

It earned $42-million (U.S.) or 35 cents a share, diluted, a hefty jump from $19.5-million or 22 cents a year earlier.

“Costing pressures will be greater in the second half of the year, and macroeconomic uncertainty has increased,” said chief executive officer Mike Jeffries. “However, our strong top-line momentum and overall performance for the past several quarters give us confidence that we are well positioned to navigate through this environment.”

Toronto, Montreal among most expensive cities Toronto and Montreal rank among the world's 20 priciest cities, according to a new study. But, for Toronto, at least, buying power lags, suggesting Torontonians have to stretch a bit more to make their way in Canada's financial capital.

The study by UBS AG examines price levels, including and excluding rent, wages and buying power. In rankings of price levels excluding rent, Toronto ranks ninth and Montreal 17th.

Vancouver, Canada's most bubbly housing market, wasn't among the 73 cities studied. (When I first called UBS to ask about Vancouver, the folks that could help me were at lunch, in Zurich, the world's second-most expensive city.)

In terms of gross wages, Toronto ranks 14th and Montreal 15th. And by domestic purchasing power based on gross hourly pay, Montreal ranks 11th and Toronto 15th.

In its last study, Toronto ranked 8th and Montreal ninth among the top 20 cities in terms of expense. Rounding out the top 10 this year are Oslo, Zurich, Geneva, Copenhagen, Stockholm, Toky, Sydney, Helsinki, and, after Toronto, Singapore.

  • To read the report, see the accompanying PDF or click here.

In International Business today Seeking a jolt for a wilting economy, President Barack Obama will give a major speech in early September to unveil new ideas for speeding up job growth and helping the struggling poor and middle class. Ben Feller of The Associated Press reports.

In Economy Lab today Soaring real estate prices in China are breaking up marriages, but not in the way you might expect. Unlike in North America, where high household debt levels are putting a lot of stress on families, Chinese couples are divorcing - or at least pretending to - in order to borrow more. The Globe and Mail's Dianne Nice reports.

In Personal Finance today The market turmoil isn’t all bad news for investors – especially new ones.

With high tuition costs and scarce jobs, some graduates are finding it hard to give up those student deals – even if what they are doing is dishonest .

How to generate interest and get the best price possible for your house.

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