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These are stories Report on Business is following Wednesday, April 15, 2015.

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The past and the future
The Bank of Canada is painting a picture of an oil-shocked economy where threats and risks abound.

As The Globe and Mail's Barrie McKenna reports, the central bank today held its benchmark overnight rate at 0.75 per cent but altered its forecasts for economic growth.

Governor Stephen Poloz and his central bank colleagues said the economy flatlined in the first quarter of the year amid the oil shock, but that the outlook is brighter in many respects and that the impact of the plunge in crude prices was front-loaded.

In its decision and monetary policy report, the Bank of Canada said it now sees the economy expanding by just 1.9 per cent this year, meaning a first quarter of no growth followed by annualized paces of 1.8 per cent, 2.8 per cent and 2.5 per cent for the current and next two quarters.

Exports, business investment and employment will perk up, according to the central bank.

But from incomes to housing, the impact is widespread and, in some cases, harsh.

Here are some outtakes from today's report:

"The decline in commodity prices is having a large effect on income, with Canada's real gross domestic income (GDI) decreasing by 0.7 per cent in the fourth quarter of 2014. Canada's terms of trade declined by about 8 per cent in the fourth quarter and are estimated to have continued to deteriorate in the first quarter of 2015 … A number of signals suggest that the reduction in domestic incomes, profits and wealth associated with this deterioration is already affecting household spending."

"In recent months, unemployment rates have increased in the main oil-producing provinces as well, interprovincial migration to Alberta has declined by over 65 per cent since the middle of last year and is at its lowest level since the third quarter of 2011. Households in oil-producing regions also appear to be reacting strongly Consumer confidence, housing activity and retail sales have all shown outsized weakness in Alberta and, to a lesser extent, in the other oil-producing provinces."

"At the national level, a soft landing in the housing sector continues to be the most likely scenario, with residential investment as a share of GDP expected to edge down over the projection horizon. Nevertheless, elevated house prices and debt levels relative to income continue to leave households vulnerable. The adverse impact of the oil price shock in Alberta and continued robust price growth in Toronto and Vancouver suggest a risk of a correction in these markets. While historical experience suggests that localized Canadian house price cycles, both in terms of the factors behind the boom as well as the correction, have typically not spilled over to other regions, it would be a major event if it occurred."

But …

"Beyond the energy sector, the natural sequence of stronger exports, increased investment and improved employment opportunities is progressing, even though the temporary weakening in the U.S. economy early in the year has slowed this process. Looking ahead, this sequence will be bolstered by strengthening U.S. demand and by the considerable easing in financial conditions that has occurred, resulting in part from the January cut to the target for the overnight rate. As the impact of the oil price shock on growth starts to dissipate, this natural sequence is expected to re-emerge as the dominant trend around mid-year."

"Easier credit conditions, together with the 8-per-cent decline in the value of the Canadian dollar relative to the assumption in the January report, will help to mitigate the negative effects of the decline in oil prices. They will facilitate the sectoral adjustment needed to strengthen investment, improve firms' cash flows and provide support to household spending."

"The January cut in the target for the overnight rate should help to mitigate financial pressures in the household sector by cushioning the decline in income and employment caused by lower oil prices. It also reduces the likelihood of a more adverse scenario that could cause stress in the financial system."

"A sustained expansion in U.S. residential investment - a key market for Canada's exports - has been slow to materialize. However, with robust growth in labour income, low mortgage rates and signs that household formation is improving, new housing construction is still expected to post strong growth later this year."

What the analysts say
"The main assessment of the BoC is that the deterioration in economic conditions related to the oil price shock is unlikely to last. The base-case scenario predicts much better days ahead. But given the considerably uncertainty remaining around the future path for oil prices and the Fed's eventual removal of monetary easing, it would be premature to say that the BoC will stay on the sidelines for the remaining of 2015." Sébastien Lavoie, Laurentian Bank Securities

"The key point here is that while the economy staggered out of the gate in 2015, the bank has not fundamentally shifted its view on the overall impact of the oil shock. They continue to believe the output gap will be gone by end-2016 and inflation will be close to 2 per cent by that time. Now the key is whether the economy continues to disappoint in the months ahead - if it looks to seriously undershoot the bank's expectation of nearly 2.5-per-cent growth over the next three quarters, another rate cut could be back on the table." Douglas Porter, BMO Nesbitt Burns

"Over all, we still think that the fallout from the collapse in oil prices will be larger than the bank assumes, thereby more negative for Canadian economic growth this year than most think. Accordingly, we expect further interest rate cuts this year, falling to 0.25 per cent before year end." David Madani, Capital Economics

"The bar gets a lot higher in Q3, and we see a risk that the economy fails to match the bank's new 2.8-per-cent call, but by then, in the throes of an election, the bank might be on the sidelines. We'll stick to our call that there will not be a second rate cut this year, despite our growth forecast being a bit below the bank's." Avery Shenfeld, CIBC World Markets

"As we start getting more information on Q2 - where the growth bar has been set a little higher at 1.8 per cent from a previous estimate of 1.5 per cent - markets should remain both data-dependent and still likely to cling to some odds of a rate cut. For the July meeting (when the next MPR is due) current pricing puts the odds of a 25-basis-point cut at about 35 per cent. Our own forecast calls for the bank to remain on hold and begin removing accommodation around this time next year." Mark Chandler, RBC Dominion Securities

"All told, it would take major disappointments on growth, inflation and employment in the coming months to prompt the central bank to move away from its current stance and dispatch another rate cut. Like the BoC, we see growth picking up significantly in the second half of the year, and based on that outlook we continue to expect the overnight rate to remain unchanged through 2015." Stéfane Marion, Krishen Rangasamy, National Bank

"Pulling all of this together, it is our view that the economic forecasts in today's MPR, combined with the balanced language encompassing the interest rate announcement, point to a central bank that is comfortable with its current monetary policy stance. Given our expectation that the economic impact of lower oil prices is mostly behind us, we expect that the Bank of Canada will keep interest rates on hold until the end of 2016." Randall Bartlett, Toronto-Dominion Bank

EU accuses Google
The European Union is formally accusing Google Inc. in an antitrust probe, alleging the search giant "abused its dominant position."

The European Commission said today it sent what is known as a statement of objections to Google, accusing the company of abuse "for general Internet search services in the European Economic Area (EEA) by systematically favouring its own comparison shopping product in its general search results pages."

No allegations have been proven.

"The Commission's preliminary view is that such conduct infringes EU antitrust rules because it stifles competition and harms consumers," it said in a statement.

"Sending a statement of objections does not prejudge the outcome of the investigation."

The EC said it also launched a probe into Google's popular Android operating system.

Google responded in a blog post, saying "people have more choice than ever before," given the wide range of search engines, social sites and specialized services.

"While Google may be the most used search engine, people can now find and access information in numerous different ways – and allegations of harm, for consumers and competitors, have proved to be wide of the mark," the company said.

It added that its officials "respectfully but strongly disagree with the need to issue a statement of objections and look forward to making our case over the weeks ahead."

Former Canadian Wheat Board sold
The company formerly known as Canadian Wheat Board has found a buyer, The Globe and Mail's Eric Atkins reports.

A joint venture between food company Bunge Canada and SALIC Canada Ltd., a subsidiary of Saudi Agricultural and Livestock Investment Co., will pay $250-million for a majority stake in grain trader now known as CWB.

The stake is the final part of the transformation of the Canadian Wheat Board, whose monopoly on wheat and barley buying in Western Canada was revoked by Ottawa in 2012.

Factory sales slump
Canadian manufacturers took it on the chin again in February, and it's actually worse than it looks.

Factory sales fell 1.7 per cent from January, marking the fourth slump in five months, The Globe and Mail's David Parkinson reports.

Not only that, but Statistics Canada also revised its January numbers to show a deeper decline of 3 per cent.

February's drop by sparked by lower auto sales and production cuts in the aerospace industry, the agency said today.

Sales fell in 10 of the 21 industries measured.

Manufacturing shipments have tumbled by 6.8 per cent from recent peak last July.

"The cold weather played a hand, but it was another disappointing month for Canadian manufacturing in February," said Nick Exarhos of CIBC World Markets.

"Manufacturing volumes - the important figure for the monthly GDP outlook - declined by 2.5 per cent, not far from the trade data which reported a 3-per-cent drop in export volumes," he added.

"The decline was pretty broad based, but was led by a 26-per-cent drop in the volatile aerospace category, and a 15-per-cent decline in autos."

Home sales up
Greater Vancouver and Greater Toronto have earned those names where the housing market is concerned.

National home sales in Canada rose 4.1 per cent in March from February, and 9.5 per cent from a year earlier, the Canadian Real Estate Association reported today.

And the national average sales price surged 9.4 per cent from a year earlier, The Globe and Mail's Tamsin McMahon reports.


When you strip out the hot markets of Vancouver and Toronto, the average price was up just 2.4 per cent over the course of a year.

The MLS home price index, which is deemed a better measure, rose about 5 per cent from March 2014.

"Greater Vancouver and the GTA are really the only two hot spots for home sales and prices in Canada," said Gregory Klump, the group's chief economist.

"Price gains in these two markets are being fuelled by a shortage of single-family homes for sale in the face of strong demand," he added.

"Meanwhile, supply and demand for homes is well-balanced among the vast majority of housing markets elsewhere across Canada."

China growth slows
China calls it "steady growth."

But as the world's second-largest economy huffed out its most anemic quarter in six years, it came with new signs that the slower pace is gathering momentum and more dramatic intervention will be needed if Beijing hopes to maintain current levels, The Globe and Mail's Nathan VanderKlippe writes.

China posted 7-per-cent expansion in its first quarter, its National Bureau of Statistics said today in a report that also highlighted the changing landscape for a country struggling to find a new footing as it days of heady growth fade.

In the first three months of 2015, industrial profit was down 4.2 per cent, domestic lending fell 3.7 per cent, foreign investment tumbled 33.5 per cent and the square footage of residential construction starts decreased 20.9 per cent.

"Overnight Chinese GDP figures have undershot market expectations and are the worst we have seen from the Asian powerhouse in six years," said market analyst Alastair McCaig of IG in London.

Nokia strikes Alcatel deal
Nokia has put the finishing touches on a takeover of Alcatel-Lucent in what the two companies say will form a foundation for "the next wave of technological change."

Nokia unveiled the deal, valued at more than $16.5-billion (U.S.), today.

Alcatel-Lucent shareholders will get 0.55 of a Nokia share.

"The combined company will be uniquely positioned to create the foundation of seamless connectivity for people and things wherever they are," the two companies said.

"This foundation is essential for enabling the next wave of technological change, including the Internet of Things and transition to the cloud."

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