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IMF boosts Canada forecast The International Monetary Fund has nudged up its economic growth forecast for Canada this year, but sent a clear warning about inflationary pressures.

In its World Economic Outlook released today, the IMF now projects growth in Canada of 2.8 per cent this year, up by 0.5 of a percentage point from its January forecast. For next year, it nudged the forecast down to 2.6 per cent.

But it cited stronger economic conditions and underlying price pressures in some advanced economies that have already hiked interest rates, such as Canada, Australia, Israel, South Korea, Norway and Sweden, and warned they will have to take further action at some point.

"Most of their policy rates remain accommodative, in a 1- to 3-per-cent range, and they will have to do more as unemployment rates fall and food and energy prices put pressure on wages," the IMF said in the report.

"In this set of economies, markets generally expect hikes on the order of 0.5 to 1.5 per centage points over the coming year."

The IMF also had interesting things to say about the housing market, given the pressure in the United States and elsewhere. Citing Canada, Greece and Japan, the group noted that "house price contractions" are continuing but are "short of being categorized as price busts."

Still, the group did warn that "risks to the growth outlook are tilted to the downside, with the main domestic risk being deterioration of housing markets and household balance sheets."

Why it's not magic Here's some advice for Greece, Portugal and Ireland: Hire the Conservative Party's bean counters and find some extra beans. Just think, if the embattled nations of the euro zone could come up with $7-billion every couple of weeks or so, the monetary union might not be in crisis.

For Canada's Conservatives, it all comes down to what had been "targeted" and what's now pledged.

To recap, on March 22 the Conservative government unveiled a document that projected a return to a budget surplus of $4.2-billion in 2015-16.

Less than three weeks later, in a campaign platform unveiled Friday, the Tories surprised everyone with a promise to jump into the black a year earlier than forecast, by 2014-15, with a surplus, or "net fiscal track," of $2.8-billion. (That includes new spending, because we are, after all, in the middle of an election.)

Is it magic? Is it ancient Greek math (the renowned kind, as opposed to modern Greek math that revises budget deficits to actually make them worse)? Or something else entirely?

It's something else entirely, and it's not entirely new. Here's how it works:

In the March 22 budget document, the Tories said a Strategic and Operating Review will look for ways to save billions of dollars over the next several years and "support the return to balanced budgets, possibly one year earlier ." There have been previous reviews, but this one is said to be a comprehensive one-year study. (The italics are mine.)

The government noted at the time that it was not recording these potential savings, but, rather, would report in its next budget on what it found. The Tories stressed they do not include such cuts until they can do them. But in that document they did identify "targeted savings" from the review of $7-billion by 2014-2015, and $11-billion by a year later.

That broke down into $1-billion in 2012-2013, $2-billion in 2013-2014, and $4-billion in 2014-2015. (There was an additional $4-billion cited for 2015-2016.)

Then on Friday, in their campaign document, the Conservatives pledged to move up the timetable of eliminating the deficit "through accelerated reductions in government spending."

This time, though, the potential savings from the Strategic and Operating Review were not labelled as targeted, but included as real, thus adding the same $7-billion to the mix by 2014-15. These numbers in the campaign document are no different than those in the budget, and they're outlined in similar fashion.

Now, of course, the Conservatives have also added $2.8-billion in new spending on election goodies by 2014-2015.

So - Presto! - if you take the potential savings of $7-billion from the strategic review, and you subtract $2.8-billion in new election pledges, you're still left with billions in seemingly found money and a budget that's in surplus a year early.

Basically, the targeted savings of March 22, which the government wouldn't book, are the firm pledges of April 8. Compare the numbers in the accompany tables or click here.

As The Globe and Mail's Barrie McKenna and Bill Curry report, the Conservatives wouldn't have had any trouble getting back into surplus a year early regardless.

(In the budget, the Tories actually said total savings could hit more than $17-billion by 2015-2016 when you include other gains, such as those from closing tax loopholes. So don't be surprised if, depending on what the polls show closer to the May 2 vote, they unveil some more fun with numbers.)

The cuts were vague and unspecified in the March 22 budget, and equally vague and unspecified in Fridays platform document. That's why Jim Flaherty wouldn't book them. The Conservatives aren't saying exactly where those $7-billion in savings will come from, but Stephen Harper said yesterday on a Quebec campaign stop that "anybody who says you can't find money in Ottawa without cutting vital services to people simply is living in a fantasy world."

Of course, not one of the parties has given chapter and verse on where projected savings are coming from, so everyone could take a lesson or two from Hypatia.

This is not to dismiss or endorse the Tory platform, or the party, or any other party, it's only to note the 'Abracadabra' nature of it all. For the Conservatives, it's akin to a magician's trick because it was there all along but most in the audience couldn't see it.

Something for everyone Whether you're an economics geek, a policy wonk, or just a Habs fan, this week has something for everyone.

Let's start with the first. The Bank of Canada is widely expected tomorrow to hold its benchmark overnight rate steady at 1 per cent, Globe and Mail economics writer Jeremy Torobin reports today. It hasn't signalled any move, and the optics wouldn't be good if it changed rates in the middle of an election campaign anyway.

What markets are watching for is what Governor Mark Carney may signal going forward, both in tomorrow's policy announcement and the central bank's monetary policy report a day later. The Bank of Canada is expected to boost its outlook for economic growth given that growth in the first quarter would have topped its earlier projections.

"Almost no one expects a rate move tomorrow, but there are many who look for a hike in the May meeting, so the language in the press release is key," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

"We suspect the bank will wait until July before hiking, but the tone will be just hawkish enough Tuesday to leave a May hike on the table ... Critical will be their call for the rest of the year, how fast the output gap closes, and where they see core inflation by year-end."

With Week Three of the election campaign now under way, leaders are preparing for their key debates. The people who decide such things have even moved up the date of the French-language debate, to Wednesday from Thursday, so it doesn't play second fiddle to the first playoff game between the Montreal Canadiens and the Boston Bruins.

(There's a virtual guarantee that Mr. Carney won't hike rates tomorrow, but I make no call as to who wins either the leaders' debates or the playoffs.)

High oil, gasoline prices a threat Economists are fretting more and more over the impact of high oil prices .

BMO Nesbitt Burns said today that the price of crude is the "biggest risk to the expansion," and that the $25-a-barrel (U.S.) run-up over the course of the past two and one-half years could trim half a percentage point from annual economic growth.

"A further spike to above $150 could carve an additional one percentage point from growth, lifting the unemployment rate and dashing any hopes of a housing recovery," said economist Sal Guatieri.

"With gasoline prices making a bee-line for $4 a gallon, budget-minded households are making ends meet by cutting back on discretionary purchases."

Separately today, Benjamin Tal of CIBC warned that higher energy prices, which account for one-third of energy consumption in Canada, are "sucking energy out of households."

"No matter how you look at it, higher energy costs bite significantly into Canadian households' pockets," Mr. Tal said in a report.

"For as long as it's sustained, the near 25-per-cent hike in gaoline prices since late 2010 will be equivalent to a 7-per-cent hike in the income tax bill of households during the course of 2011. That can influence not only the speed and composition of growth in personal consumption but also the health of Canada's retail sector."

The stronger Canadian dollar is limiting the price hike of gasoline to some extent, Mr. Tal said, but current prices are still moving closer to the levels of the 2008 oil shock.

Different regions will fare differently, he added.

"Households in energy-rich provinces such as Alberta wil enjoy a wealth and income boost from rising energy prices that will offset some of the increase in their energy costs," he said.

"By income, higher-income households may be able to absorb the increase in energy costs with little notice. But for low- and middle-income Canadians, the situation is very different."

There's also an impact on where families spend their dollars.

"Using the price hike of 2007-08 as a guide, we can clearly see that higher gas prices have a significant negative impact on sales of motor vehicles and parts as well as on less essential items such as sporting goods, clothing and personal care," Mr. Tal said.

But the most important impact will be on food.

"There is clear evidence that higher gasoline prices lead to reallocation of expenditures across and within food-consumption categories," he wrote in his report.

"With gasoline expenditures rising, consumers substitute food-away-from-home (remote locations) towards groceries. And within the grocery stores, consumers substitute away from regular shelf-price products towards promotional items. On average, it is estimated that the 25-per-cent increase in gas prices will cut the net price paid per grocery item by 2 per cent to 3 per cent."

Apple OS to dominate The operating system of Apple Inc. will dominate the media tablet market for the next several years despite growing competition, a leading research firm said today.

Apple's system will represent 69 per cent of operating systems on the market this year, dipping to 47 per cent in 2015, Gartner Inc. said in a report.

The Android system from Google Inc. will also rise, though, from 20 per cent this year to 39 per cent in 2015, Gartner said.

"Apple iPad did to the tablet PC market what the iPhone did to the smart phone market: re-invented it," the group said.

"A media tablet is not just a different form factor to perform the same tasks that can be done on a PC. Tablets deliver a richer experience around content consumption, thanks to the ecosystem they support. The richer the ecosystem, the stronger the pull for consumers."

Lazaridis on RIM Mike Lazaridis is clearly bugged.

In an interview with The New York Times, the co-chief executive of Research In Motion Ltd. wants to know why the BlackBerry maker doesn't get the respect it deserves.

"Why is it that people don't appreciate our profits?" he told the newspaper. "Why is it that people don't appreciate our growth? Why is it that people don't appreciate the fact that we spent the last four years going global? Why is it that people don't appreciate that we have 500 carriers in 170 countries with products in almost 30 languages?"

Indeed, markets have time and time again underestimated RIM as they talk about the growing threat from competitors such as Apple. (This is me, not him.)

His interview with the paper comes as the Waterloo, Ont.-based company prepares to launch its PlayBook tablet.

Pension funds strike TimberWest deal Two of Canada's big pension funds are teaming up in a bid to acquire TimberWest Forest Corp. for more than $1-billion, including debt.

But under today's deal with British Columbia Investment Management Corp. and the Public Sector Pension Investment Board, the Vancouver-based forest company has two months to solicit superior proposals.

While the pension funds have no right to match any competing offer, there is a break fee to the pension funds of about $18-million, they said in a statement.

RBC sale in U.S. would be 'positive' Any sale of the U.S. retail operations of Royal Bank of Canada would be positive for Canada's biggest bank, CIBC says, commenting on Globe and Mail reports that RBC is eyeing such a deal.

As The Globe and Mail's Grant Robertson, Tara Perkins, Boyd Erman and Tim Kiladze reported last week, RBC is fielding offers for its U.S. retail bank, and has received some expressions of interest.

"The bank has said little but it would appear that it is considering either an outright sale of its troubled U.S. asset or a vend-in that would see it take a minority stake in the acquirer," CIBC analyst Robert Sedran said in a research note.

"Given the near-term and long-term challenges here, we would view an outright sale positively, especially since it would remove an earnings drag and allow management to focus on its core business."

In Economy Lab today

Stephen Gordon takes a look at the platforms of the major parties, and finds them wanting.

Canada's employment picture is actually weaker than it looks, says a new report that warns the economy isn't growing fast enough to bring down the high jobless rate in any meaningful way.

In Personal Finance today

There are a few changes Canadians should keep in mind when planning their taxes this year, Dianne Nice writes.

You can be earning absolutely zilch and paying exactly zero taxes and still be entitled to certain tax credits. All you have to do is be at least 18 years old and file a return, Sonali Verma explains.

Want to improve your credit score and maintain good standing? Personal finance expert and author Kelley Keehn explains how in The Money Book For Everyone Else.

From today's Report on Business

Follow on Twitter: @michaelbabad

 
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