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Canada’s ‘gaping’ economic divide to narrow as the West slows down Add to ...

These are stories Report on Business is following Thursday, Jan. 17, 2013.

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Economic divide to narrow
The “gaping” economic divide among Canada’s provinces appears to be narrowing, a new report suggests, as the West shifts down.

Among the factors hurting the western provinces are the discount in Canadian oil prices to world benchmarks and the rapidly cooling housing market in British Columbia, according to the report from BMO Nesbitt Burns.

“On the fiscal front, nearly all provinces have seen their projected [fiscal 2012-2013] balances deteriorate since the budget season, largely the result of a weaker-than-expected commodity price and nominal GDP environment,” said economist Robert Kavcic..”

The resource sector continues to fuel solid growth in Western Canada, but Alberta’s economy is expected to downshift further this year to a sub-3-per-cent pace from 3.4 per cent in 2012 and torrid 5.1-per-cent growth in 2011,” he said in the report released today.

“While the energy sector is still humming, growth has been tempered at the margin by a lack of pipeline capacity (and still-uncertain development prospects) and, in turn, a deep discount for Canadian heavy oil prices relative to WTI,” Mr. Kavcic said, referring to the hefty gap between prices for western Canadian oil and the West Texas Intermediate benchmark.

“British Columbia, with its weakening housing market, as well as Saskatchewan and Manitoba are also expected to downshift this year, narrowing the gap between the West and the rest.”

British Columbia, of course, has been the poster child for the cooling real estate market, with Vancouver going beyond what economists believe is a soft landing.

The central provinces face several challenges, Mr. Kavcic said, including government austerity, the strong Canadian dollar and soft demand in the United States.

And with a few asides, notably Newfoundland and Labrador, the strong dollar and “capital spending retrenchment” are also holding back economic growth in the east.

Mr. Kavcic Projects growth this year of 2.2 per cent in British Columbia, 2.7 per cent in Alberta, 2.6 per cent in Saskatchewan and 2.2 per cent in Manitoba. Growth then shifts down to 1.7 per cent in Ontario and 1.3 per cent in the laggard Quebec, and picks up slightly heading east, at 1.6 per cent in New Brunswick, 1.8 per cent in Nova Scotia, just 1.5 per cent in Prince Edward Island and a hefty 4.5 per cent in Newfoundland and Labrador.

In some regions, unemployment is forecast at depressing levels, and here’s where the east-west divide is most striking.

Jobless rates in the western provinces are forecast to range from a low of 4.5 per cent in Alberta to a high of 6.6 per cent in British Columbia.

Elsewhere, rates will run higher, from a low of 7.7 per cent in central Canada to a high of 12.4 per cent in Newfoundland and Labrador.

Alcan crushes Rio Tinto
The $38-billion takeover of Canada’s Alcan Aluminum came back to haunt Rio Tinto PLC today, with a massive writedown and the departure of two top executives, including CEO Tom Albanese.
The mining giant disclosed it will take a hit of about $14-billion (U.S.) after tax in its 2012 results. Some $3-billion of that is on its Mozambique coal operations, while $10-billion to $11-billion is related to its aluminum assets, largely Rio Tinto Alcan. It’s the second major aluminum writedown in as many years.

Mr. Albanese and Doug Ritchie, the man behind Rio’s recent Mozambique deal, are leaving their jobs immediately, but won’t leave the company until mid-July. Mr. Albanese is being succeeded by Sam Walsh of the company’s iron ore operations.

Rio Tinto noted that they will get their base pay during the period, neither will walk away with any lump-sum payment, annual bonus for 2012 and 2013, or long-term stock compensation for this year.

“The Rio Tinto Board fully acknowledges that a writedown of this scale in relation to the relatively recent Mozambique acquisition is unacceptable,” said chairman Jan du Plessis.

“We are also deeply disappointed to have to take a further substantial writedown in our aluminium businesses, albeit in an industry that continues to experience significant adverse changes globally.”

The Globe and Mail’s mining reporter, Pav Jordan, notes that Rio has stumbled most in the wake of the financial crisis among the world’s big miners, and its language of late has been more pessimistic.

“It is early days but we think that the market will be impressed by Rio’s face-saving operation here,” said sales trader Will Hedden of IG in London.

“Many big name firms have been slow to react to poor M&A deals over the last few years, and the growth of ‘shareholder power’ in 2012 will have undoubtedly played a part in Rio’s defined line drawing here.”

Dreamliner troubles mount
Shares of Boeing Co. ended the day up more than 1 per cent, having slipped again amid mounting troubles for the company’s embattled Dreamliner.

World aviation authorities have now grounded the 787 while they probe safety issues, The Globe and Mail’s Guy Dixon reports.

The Federal Aviation Administration in the United States took action late yesterday, while European, Japanese and Indian officials followed suit today.

“Before further flight, operators of U.S.-registered, Boeing 787 aircraft must demonstrate to the Federal Aviation Administration that the batteries are safe,” the FAA said after an All Nippon flight was forced to make an emergency landing related to the battery.

Boeing says it is “working around the clock” with regulators and customers, and that it’s confident the Dreamliner is safe.

“We will be taking every necessary step in the coming days to assure our customers and the traveling public of the 787's safety and to return the airplanes to service,” chief executive Jim McNerney said in a statement.

Citigroup stock sinks
There are misses, and then there are misses.

Citigroup Inc. shares tumbled today after the banking giant posted a stronger profit, though still weaker than expected by analysts, in its fourth quarter.

Citigroup earned $1.2-billion (U.S.) or 38 cents a share, up from $956-million or 31 cents a year earlier. That’s despite a hit of $1.3-billion largely related to legal costs.

Adjusted earnings per share came it at 69 cents, compared to a projection among analysts for 96 cents.

Revenue climbed to $18.2-billion from $17.2-billion.

"Our bottom line earnings reflect an environment that remains challenging – with businesses working through issues like spread compression and regulatory changes – as well as the costs of putting legacy issues behind us,” said chief executive officer Michael Corbat.

H&R eyes Primaris
H&R Retail Real Estate Investment Trust believes now is the time to take over Primaris Retail Real Estate Investment Trust, with Target Corp. about to kick off an invasion of Canada by foreign retailers, The Globe and Mail's Tara Perkins reports..

By way of its bid, H&R is seeking to get bigger and stronger at a time when the mall ownership game is changing, Tom Hofstedter, the CEO of H&R, told analysts on a conference call today.

H&R’s friendly offer for Primaris comes after a hostile bid caught Primaris off guard.

Bundesbank bows out of Bangladesh venture
Germany's central bank says it won't push ahead with a plan to help Bangladesh stamp out counterfeiting. For the Bundeskbank, printing fake money is a "serious criminal offence" but the threat of the death penalty is "excessive."

The Bundesbank had been scheduled to help on the counterfeit front beginning next month, but said today it is shelving the plan until further notice, and won't take part at all unless Bangladesh "clearly and irrevocably" drops reported plans to kill people who counterfeit.

"This decision was triggered by press reports that Bangladesh is planning to threaten to impose the death penalty for serious cases of counterfeiting," the central bank said. "The Bundesbank was not aware of these plans when it offered consultation and training services on counterfeit prevention as part of its technical central bank cooperation activities."

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