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S&P affirms Canada's triple-A rating Add to ...

These are stories Report on Business is following Monday, Dec. 10, 2012.

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S&P affirms Canada's triple-A
Standard & Poor's Ratings Services has affirmed Canada's triple-A rating, citing the strengths of its economy and its record in fighting the crisis.

"The ratings on Canada reflect Standard & Poor's opinion of the country's  relatively diversified and resilient economy and its effective and predictable policymaking and political institutions," analyst Nikola Swann said in a statement.

S&P said further in its release that "Canadian authorities have a strong track record in managing economic and financial crises and delivering economic growth. During the recent global financial crisis and recession, no Canadian financial institution required a government injection of capital and Canadian real GDP per capita growth exceeded U.S. growth in almost every year of the 2007-2011 period."

The chief credit risk, the ratings agency said, is Canada's "high dependence" on the U.S. economy, though that, too, should not hit the country badly.

"Standard & Poor's base case is that  the U.S. economy will continue to grow weakly but avoid an extended double-dip recession, sustaining Canada's principal source of external demand and contributing to its growth prospects; that inflation expectations will remain well-anchored; that fiscal deficits will slowly decline toward balance; and that any fiscal impact from a potential housing market correction will prove limited," said Mr. Swann.

"Given Canada's strong political and economic positions, a combination  of increased political uncertainty and noticeably weaker fiscal or external outcomes would likely be necessary for downward pressure to build on the rating,"

Housing starts slip
The cooling of the housing markets in the provinces of Ontario and British Columbia are taking a bite out of construction.

Over all, housing starts in Canada dropped in November to an annual pace of 196,125, from October’s 203,487, Canada Mortgage and Housing Corp. said today.

“As expected, housing starts remained below their recent trend and continued to fall for a third straight month,” said the agency’s deputy chief economist, Mathieu Laberge.

“This decrease was mainly attributable to declines in single-detached and multi-unit housing construction in Ontario and British Columbia, resulting in part from a decline in the pace of pre-sales relative to that in late 2010 and early 2011.”

In Toronto, where condo development has been such a concern, the annual pace tumbled to 37,100 from 45,400.

“New home construction has moderated over the past few months in response to slower demand and the number of condos already under construction,” said Shaun Hildebrand, the CMHC senior market analyst for Toronto.

At this point, said Emanuella Enenajor of CIBC World Markets, housing starts are at about the levels of early this year, though are still "mildly elevated" compared to the formation of households over the past 10 years, of about 185,000.

"Today’s weaker-than-expected reading suggests homebuilding in Q4 is set to decelerate measurably from the pace of the prior quarter, likely exerting a drag on the economy," she said.

Economists generally expect an orderly retreat for Canada's housing market, rather than a crash.

"The modest decline is consistent with what appears to be a softly-landing housing market, at least in the vast majority of the country," said Robert Kavcic of BMO Nesbitt Burns, referring to today's report.

"With national sales down about 10 per cent since the spring high, and given that construction tends to lag demand, the surge in starts to above 250,000 in April is looking increasingly like a near-term high for Canadian residential construction."

Stephen Harper's partly-pregnant takeover policy
I agree with much of what Canada’s prime minister is doing when it comes to takeovers by foreign state-owned companies. But his new takeover regime reminds me of the saying about being a little pregnant.

Here’s what Canada’s Industry Minister, Christian Paradis, said Friday as he approved the takeover of energy giant Nexen Inc. by China’s CNOOC Ltd. and the deal for Progress Energy Resources Corp. by Malaysia’s Petronas under the old rules:

“Under the Investment Canada Act, CNOOC has satisfied me that, under existing guidelines, their proposed transaction to acquire control of Nexen is likely to be of net benefit to Canada.”

Then there’s what Prime Minister Stephen Harper said at the same time in announcing new rules:

“The larger purposes of state-owned enterprises may go well beyond the commercial objectives of privately owned companies … Canadians have not spent years reducing the ownership of sectors of the economy by our own governments, only to see them bought and controlled by foreign governments instead.”

Mr. Harper fenced off the oil sands from further incursion by SOEs, unless in “exceptional circumstances” and set new thresholds, among other measures.

To me, this is like being a little pregnant. The bottom line is whether or not Canada will tolerate SOEs. On the one hand, it did. But on the other, it won’t.

I understand the diplomacy and trade reasons for throwing China a bone and the quest to further open new markets for Canadian business, though I wonder what we’re getting in return.

But the government must now answer some basic questions on SOEs.

What Mr. Harper is saying is that foreign governments can have Nexen, this time, but not Suncor next time. (Well, they can have a little piece of Suncor. Or all of it, if it’s an “exceptional circumstance” that, to date, has no definition.)

If Mr. Harper fears that SOEs have already made too many inroads and may have nefarious purposes – as in, going beyond “commercial objectives” – why let CNOOC and Petronas go ahead at all?

(Conversely, someone on the other side of the issue could easily make the argument that if SOEs such as CNOOC and Petronas were able to convince Canada that their deals are of “net benefit,” why can’t others?)

Indeed, The Globe and Mail’s Carrie Tait reports, Natural Resources Minister Joe Oliver said today that the CNOOC-Nexen deal might not have passed muster under the new takeover regime.

And let’s not be fooled by the issue of the cumulative impact to date. You either welcome SOEs, or you don’t. You’re either pregnant, or you’re not.

I agree with a lot of what Mr. Harper said where the new rules are concerned, though these new regulations are vague and, surely, foreign investors must be puzzled.

I agree with him because I’m a child of the 60s and still have a healthy mistrust of any government.

I’m also something of an economic nationalist. So I loved his line about Canada not being for sale to foreign governments. Even though we just gave foreign governments $21-billion worth.

Despite my stated nationalism, I’m generally okay with takeovers and foreign companies operating in Canada as long as they play by our rules and the companies are not owned by their governments.

It’s the government aspect that gives me a little morning sickness, and I have feared for some time that when the current economic turmoil finally ends in five or 10 years, we’ll wake up to realize that deep-pocketed governments own much of the world’s resources

Just sayin’Spies see lagging growth
America’s intelligence community believes the global economy won’t be back in pre-crisis mode for at least a decade.

Indeed, the report by the National Intelligence Council paints a rather bleak outlook, not only among developed countries, but also among emerging economies, such as the powerhouse that is China.

“A return to pre-2008 growth rates and previous patterns of rapid globalization looks increasingly unlikely, at least for the next decade,” says the report, which assembles the views of the 16 intelligence groups in the United States.

“Across G7 countries, total non-financial debt has doubled since 1980 to 300 per cent of GDP, accumulating over a generation.”

The council notes studies that suggest recessions in combination with financial crises are generally deeper, with double the recovery period, than others.

“The international economy almost certainly will continue to be characterized by various regional and national economies moving at significantly different speeds — a pattern reinforced by the 2008 global financial crisis,” says the report.

“The contrasting speeds across different regional economies are exacerbating global imbalances and straining governments and the international system. The key question is whether the divergences and increased volatility will result in a global breakdown and collapse or whether the development of multiple growth centers will lead to resiliency. The absence of a clear hegemonic economic power could add to the volatility.”

An “unruly Greek exit” from the 17-member euro zone, for example, could cause “eight times the collateral damage” of the Lehman Bros. collapse that sparked it all, it quotes the McKinsey Global Institute as suggesting.

The United States, while in a better position than some, will have to boost productivity, while China faces the possibility of “being trapped in middle-income status” as per-capita income lags that of advanced economies.

China’s exports slip
The latest numbers from China are giving mixed signals.

Industrial production climbed 10.1 per cent in November, for a better showing than expected.

But growth in exports slowed sharply, to 2.9 per cent in November from 11.6 per cent in October. There were other data points as well over the weekend, all of which signal China’s continued recovery, but a potentially weaker one.

“In sum, having now seen most of the key releases for November, our conclusion is that the rebound is continuing but that it appears to be losing some strength,” said Mark Williams and Qinwei Wang of Capital Economics in London..

“Continued acceleration would require a pick-up in investment beyond infrastructure, stronger household spending, an export recovery or further stimulus. There is no sign of any of these happening so far.”

Japan sinks
It’s not so much that Japan has plunged back into recession. It’s more like it was already there, and just didn’t know it.

The government today revised its quarterly readings of the economy to show back-to-back contractions, meeting the technical definition of a recession.

In Japan’s case, it’s the fifth recession in 15 years.

The new numbers come amid a political campaign heading toward a mid-December election and raises the temperature, notably on the Bank of Japan, which has been under pressure to do more.

"To the extent that there is a positive note out of Japan’s data releases today, revisions to Japan’s Q3 GDP numbers left the pace of decline unchanged from the advanced GDP release at -3.5 per cent quarter-over-quarter annualized," said Derek Holt and Dov Zigler of Bank of Nova Scotia, referring to just one of the revisions.

"It’s been that kind of year for Japan’s economy."


CareerBliss has published its annual list of the 50 Happiest Companies in America, which is based on how the employees of said companies feel. Top of the list is Pfizer Inc. (Wonder if they get free Viagra?)

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