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A Canadian dollar or loonie. (Jonathan Hayward/THE CANADIAN PRESS)
A Canadian dollar or loonie. (Jonathan Hayward/THE CANADIAN PRESS)

Business Briefing

Loonie to lift Canada's economy, housing to hinder, forecast says Add to ...

These are stories Report on Business is following Wednesday, June 11, 2014.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Economy to pick up
A weak currency will help buoy Canada’s economy this year and next, though a slower pace in the housing market will temper the recovery, a new forecast suggests.

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Today’s Royal Bank of Canada study projects the economy will expand by 2.4 per cent this year and 2.7 per cent in 2015, driven by heightened demand in the United States for Canadian exports.

“With the global demand picture improving, the weakening in Canada’s dollar will provide the extra lift needed to transition the export sector into more than a bit player in terms of supporting economic activity,” the RBC economists said.

Canadian consumers will also help keep the economy aloft, though residential real estate is the “one area likely to slow,” they added.

“Falling mortgage rates supported the recovery, although we expect it will prove to be short lived given that the persistent increase in prices has damaged affordability in some key markets.”

Inflation, in turn, will “grind higher.”

Some key points from the study:

  • The loonie, as Canada’s dollar coin is known, has been on the decline since the fall of 2012, though recently has picked up some steam to sit in the 92-cent (U.S.) range. But a rise in the U.S. dollar promises to send the Canadian currency down again, to 85 cents by the end of next year.
  • “Labour market conditions will tighten and wages will increase more rapidly,” thus helping to boost inflation. Both the overall pace of inflation, and the so-called core rate that strips out volatile measures and helps guide the Bank of Canada, should sit at about the central bank’s target of 2 per cent by the second half of next year.
  • The jobs market, which has stalled, is still a trouble spot, though the RBC economists didn’t say that. They project, however, that unemployment will remain stubbornly near 7 per cent this year, easing next year but still slightly above 6.5 per cent.
  • Wage gains, now running about 2.2 per cent, are projected to speed up.

“Our forecast assumes that as external demand for Canada’s exports strengthens, the pace of hiring will accelerate, thereby leading the labour market closer to full employment,” said the study by RBC economists Craig Wright, Dawn Desjardins, Paul Ferley and Nathan Janzen.

“Against this backdrop, wages are also expected to grow at a strong pace, resulting in incomes rising faster than household mortgage and credit growth capping the upside in the debt-to-income ratio.”

Regionally, a separate report by Mr. Ferley and RBC economists Robert Hogue and Laura Cooper suggests the economies of all Canadian provinces will expand compared to last year, though "Alberta will far outpace all others."

Among those others, Nova Scotia, Ontario, New Brunswick, Quebec and British Columbia are forecast to pick up speed, while the pace of growth slows in Saskatchewan, Manitoba and Newfoundland and Labrador. Alberta and Prince Edward Island will hold steady.

The RBC study came as the World Bank trimmed its projections for global economies, warning that developing countries are in for a year of “disappointing growth.”

“Bad weather in the U.S., the crisis in Ukraine, rebalancing in China, political strife in several middle-income economies, slow progress on structural reform, and capacity constraints are all contributing to a third straight year of sub 5-per-cent growth for the developing countries as a whole,” the group said.

Call it a rip in the seams
Shareholders of Lululemon Athletica Inc. have re-elected the two directors that company founder Chip Wilson voted against for not aligning with the company’s “core values of product and innovation.”

Chairman Michael Casey, a former Starbucks executive who recently replaced Mr. Wilson in the role, and director RoAnn Costin, a private equity executive, kept their positions, The Globe and Mail's Marina Strauss and Boyd Erman reports.

The board election results were announced at the yoga wear retailer's annual meeting in Vancouver.

Mr. Wilson said in a statement this morning he voted against the re-election of Mr. Casey and Ms. Costin because they don’t understand the company’s values of product innovation.

Mr. Wilson said that as a 27 per cent shareholder “I believe change is now needed at the board level to increase shareholder value.”

Lululemon issued a statement midday, countering Mr. Wilson by saying that its board members are “aligned with the company’s core values and possess the necessary expertise to successfully lead Lululemon forward."

Trouble in the skies
There’s a fair bit of turbulence in the skies today.

First, Germany’s Lufthansa rattled investors as it projected a weaker-than-expected 2014 operating profit, trimming the figure to some €1-billion, down from an earlier forecast of between €1.3-billion and $1.5-billion.

It also said it probably won’t meet its 2015 target.

Among other things, it cited a pilot strike early last month, though added that bookings have “only recently” returned to normal, and the declining Venezuelan currency.

“Above all it is the group’s American and European business that has suffered from increasing excess capacity, which leads to falling prices on these routes,“ the airline said.

At the same time, Emirates Airline scrapped a $16-billion (U.S.) order for Airbus A350 jets, dealing a mighty blow to the European aircraft building.

“Airbus is very confident in its A350 XWB program,” the company said in a statement.

“Half a year before entry into service, the A350 XWB order book stands at a healthy 742 firm orders. The A350 flight test campaign is progressing well and is on track for type certification in the coming months.”

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