These are stories Report on Business is following Tuesday, Nov. 27, 2012.
The man and the job
Normally, when someone moves on to a bigger and better-paying job, you wish him well and move on.
Not this time.
Ignore for a moment that Mark Carney is skipping out early on his seven-year term as Bank of Canada governor to take the helm at the storied Bank of England.
And ignore that he promised us just a few months ago that he’d never – ever – look at that job.
What’s important is that his work’s not done here.
Mr. Carney is arguably the best central bank chief Canada has had, though others never had their trial by fire and thus the distinction may be unfair.
But all too clear is how Mr. Carney deftly steered Canada’s economy out of the crisis and recession. Our banks didn’t fail, and we regained the jobs we lost.
While other countries struggled mightily with the ugliest downturn since the Great Depression, Canada’s recession was not as bad as those of the early 1980s and 1990s in the depth of the slump and the spike in unemployment.
That’s not to suggest for a moment that there’s not bench strength at the Bank of Canada, or a capable outsider, for that matter.
But in this case, it is the man, or the woman, not the position.
Consider the devastation in the days of John Crow, when unemployment reached almost 12 per cent.
It’s no surprise that the British government would reach out to Mr. Carney – indeed, almost stalk him, by some accounts - in its hour of need.
He is seen as a strong central banker and financial regulator.
Mr. Carney said yesterday that fixing Britain’s economy is crucial to the world. As is reform of its banking system.
“This is a critical time for the British, European and global economies,” Mr. Carney said.
“It’s a decisive period for reform of the global financial system including its leading financial centre, the City of London, and it’s a crucial point in the Bank of England’s history as it accepts vital new responsibilities.
It’s true that London’s banking scene is crucial to the world’s financial system, and that Canada’s is sound. Of course, Mr. Carney was already on that world stage as head of the global Financial Stability Board.
And while Canada’s economy may be in better shape, it’s clearly in a soft patch, as The Globe and Mail’s Tavia Grant reports today.
In fact, the Organization for Economic Co-operation and Development, in a new forecast, projects growth of 2 per cent this year, just 1.8 per cent next and 2.4 per cent in 2014.
We’re likely to learn on Friday, when Statistics Canada releases its latest reading, that the economy expanded at an annual pace of less than 1 per cent.
More worrisome is unemployment, projected at 7.3 per cent this year, 7.2 per cent next and 6.9 per cent in 2014. Remember, too, that our young people are suffering with unemployment near 15 per cent.
Economists generally expect to see little change in monetary policy under Mr. Carney’s successor.
I accept Mr. Carney’s argument that where he’s headed next summer is important for the global economy. I also accept that the move, as he put it yesterday, is “a major opportunity.”
But in this case, the task of guiding Canada’s economy in this ugly post-crisis era is more important than ambition.
As officials said at the time of Mr. Carney’s appointment, he was the right person for the job. He still is.
(There are many comments today about Mr. Carney’s appointment, things about hockey players and the like, though I haven’t seen a lot of the use of “eh.” One of my favourites comes from Derek Holt and Dov Zigler at Bank of Nova Scotia: “Yesterday's move by BoC Governor Carney to head the BoE was probably the biggest sale of Canadian talent since Wayne Gretzky's move to LA.”)
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- Kevin Carmichael's Economy Lab: BoE's openness will challenge Carney
- Mark Carney leaves Ottawa for mission to Britain
- New Bank of Canada head to inherit a thorny situation
- Boyd Erman's Streetwise: Britain gets its financial saviour
- Britain offers true test of Carney's mettle
- Subscribers only: Welcome to the snake pit, Mr. Carney
Growth to stagnate
The OECD has a warning today for Mr. Carney's successor: Higher interest rates may be needed at just about the time that he or she takes over.
In a new global outlook, the Organization for Economic Co-operation and Development forecasts Canada’s economy will log “moderate” growth until mid-2013.
“Housing investment and house prices are set to cool somewhat in response to tighter mortgage rules to prevent households from becoming over-extended,” the group said, referring to the latest round of mortgage restrictions that came into effect in the summer.
“The public sector is consolidating, and exports are being held back by poor competitiveness and weak global growth,” the OECD said in its look at all its member nations.
“Business investment should remain relatively strong, however, thanks to global demand for natural resources, low capital costs and corporate tax rates, and the high exchange rate, which is reducing the price of imported capital equipment.
That high exchange rate is also dampening Canadian exports, which, on a net basis, are projected to slump by 0.2 per cent this year and 0.4 per cent next, with a slight pickup in 2014.
Mr. Carney and his colleagues have already signalled their intention to resume raising interest rates, though who knows what will happen given the global uncertainty, notably in the United States and Europe.
And Mr. Carney will, by that point, have taken over as the new governor of the Bank of England.
Most observers weren’t anticipating an actual hike until well into next year, anyway, so the OECD’s call is unsurprising.
Some observers, however, see an interest rate hike now even further off given the change at the helm.
"The BoC has a very strong team, but it is difficult to imagine a bias change amid leadership uncertainty and in the early going for Carney’s successor," said Derek Holt and Dov Zigler of Bank of Nova Scotia.
"This is a further factor in favour of our view that the BoC will remain on hold until 2014 with the bigger risk being later rather than sooner as housing comes off the boil and the trade picture remains under pressure," they said in a research note.
For its part the OECD said "economic slack is not large" and a shift to higher rates may be required by the second half of next year.
“If housing-market imbalances worsen, the government should respond with further macro-prudential measures. Federal and provincial budget consolidation is needed and welcome, but if new shocks were to weaken underlying growth materially, the pace of debt reduction should be slowed.”
The latter is a call to Finance Minister Jim Flaherty, whose latest economic update has already pulled back on deficit targets.
Over all, the OECD forecast a “hesitant and uneven recovery” for the global economy over the next couple of years, warning that “decisive policy action” is needed to head off another recession.
It cited the budget standoff in the United States and the ongoing troubles in the 17-member euro zone.
Greece gets its deal
The deal among Greece’s lenders leaves much to the imagination. As in, try to imagine the day when Athens is on a sustainable path.
“Over all, the main concern is that this doesn’t tackle the underlying austerity trap which dooms Greece to a seemingly never-ending cycle of recession and poor public finances,” said Kit Juckes, Sébastien Galy and Olivier Korber of Société Générale.
“But then, as one wit put it, the deal doesn’t provide a solution to cancer either. In other words, it would be wrong to expect too much and yet the market reaction to the ‘deal’ is still disappointing.”
Indeed, one of the problems is that some of the issues aren’t worked out, though the deal between the finance ministers of the 17-member euro zone and the International Monetary Fund means Greece can get about €34-billion in bailout funds and stave off bankruptcy. Again. And for now.
This one’s certain to come back and bite Europe. But for now, Athens gets some leeway in that its target is now to cut its ratio of debt to gross domestic product to 124 per cent by 2020.
“After several meetings, hours of talks and a number of false starts it appears that Greece has finally got its debt deal and with it around €34-billion of new bailout money, however some elements still remain to be agreed upon, and as such the potential for further wrangling and potholes in the road remains,” said senior analyst Michael Hewson of CMC Markets in London.
“It appears that the interest rates on Greek loans, would be reduced or deferred, while some maturities will be extended, which is likely to incur losses for some countries who have borrowed money at much higher rates.”
“Meanwhile, yesterday's news that the next head of the Bank of England is Canadian Mark Carney has seen stocks of Céline Dion, Bryan Adams and Mountie jokes rise dramatically.”
Bombardier in huge deal
Canada's Bombardier Inc. has secured a massive sale of business jets, at $7.8-billion (U.S.) the biggest in its history, The Globe and Mail's Bertrand Marotte reports today.
The deal is with VistaJet for up to 142 Global business aircraft, made of firm orders for 56 jets and options for 86 more.
“We view this announcement as positive for Bombardier as it confirms its strong leadership in terms of market share in the high-end segment following the major orders from NetJets and VistaJet,” said Desjardins analyst Benoit Poirier.
The only other order of this magnitude for Bombardier was last June’s commitment from NetJets to buy up to 275 Challenger jets, valued at about $7.3-billion.
“By any standard, this is a historic order for Bombardier," said Steve Ridolfi, chief of the company's business aircraft unit.
Output slows in South Africa
The unrest in South Africa’s key mining sector dragged down economic growth in the country to 1.2 per cent, annualized, in the third quarter, below what had been expected.
The troubles in the mining industry, beset by violent strikes earlier in the year, drove down output in the sector by 12.7 per cent, Statistics South Africa said today.
South Africa’s latest economic reading sets the stage for those later in the week in Brazil and India.
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