These are stories Report on Business is following Tuesday, Feb. 24, 2015.
It has been a rather depressing day, all things considered.
First, the Alberta government painted a picture of slower economic growth, a relatively flat jobs market, a cooling housing market and sinking corporate profits.
Then Bank of Canada Governor Stephen Poloz weighed in, warning of the "setback" to the economy from the slump in the oil market.
Let's start with Alberta's fiscal update:
The province should escape a deficit this fiscal year, despite the huge hit to revenues.
The government projected, however, that economic growth will slow to just 0.6 per cent.
It expects oil patch investment to plunge by about 30 per cent this year as producers focus on "more efficient projects and delay spending on exploration." Weaker cost pressures should help, though.
Export volumes should rise, with new oil sands projects coming to fruition, while other industries, such as forestry and tourism, get a boost from a stronger U.S. economy, lower costs and the weak Canadian dollar.
The jobs market is expected to flatline, with employment up just 1 per cent this year and the jobless rate spiking to 5.4 per cent from last year's average of 4.7 per cent after losing 31,000 jobs over the rest of the year.
"Growth in weekly earnings expected to moderate to 2.2 per cent after five years of solid growth," the document added.
Residential construction is forecast to plunge, with housing starts sinking to about 35,000 this year from 2014's 40,600.
Consumers are also projected to pull back, with spending still rising but "at a slower pace" than over the past few years.
"While capital spending budgets in the energy sector have been axed, actual production is expected to keep growing this year – most of the cost in an oil sands project is sunk up front," noted senior economist Robert Kavcic of BMO Nesbitt Burns.
"Nominal GDP, however, will plunge as the value of that output falls (the province is expecting an 8.5-per-cent decline)," he added.
"Practically speaking, this all means a much lower base on which the province can derive corporate and personal income tax revenues, a rise in the jobless rate toward 5.5 per cent, a drop in migration flows, a housing market correction and subsequent slowdown in construction activity."
Mr. Poloz, in turn, in a speech in London, Ont., also cited the hit to Canada from the oil price shock.
He didn't give any clues as to whether he'll follow up last month's surprise rate cut with another one next week, but did reiterate that the January move was for "insurance" and that what comes next depends on developments.
"Using the term 'insurance' underscores that we are in a very uncertain setting, and what we are trying to do is to manage the risks we face, not eliminate them – we are not in a position to engineer the perfect outcome," the central bank chief said.
Canada will benefit from stronger exports, buoyed by the weaker dollar and the U.S. pickup, and from consumers spending the money they've saved on gas. But that is gradual, he said, and the impact uncertain.
And there are risks.
"The oil price shock is an important setback in our progress toward full capacity, full employment and stable inflation because it is a net negative for economic growth," Mr. Poloz said.
"And because lower oil prices mean lower Canadian income, the shock will worsen the debt-to-income ratio of Canadian households, thereby increasing financial stability risks."
The Canadian dollar climbed after Mr. Poloz's comments, on a day that saw the currency swing by more than a penny by late afternoon, touching a low of 78.98 cents U.S. and a high of 80.13 cents.
Mr. Poloz had been expected to sound a "dovish" tone. But the signal that he sent, said chief currency strategist Camilla Sutton of Bank of Nova Scotia, was that "that one rate cut was insurance, and now they're in wait-and-see mode."
Some economists haven't changed their view, however, and still expect Mr. Poloz to cut his benchmark rate again, bringing it to just 0.5 per cent.
"The governor highlighted financial stability and uncertainty as key factors that need to be better gauged by central bankers," said senior economist Krishen Rangasamy of National Bank.
"Since it is very concerned about the impacts of the oil price collapse on financial stability in Canada, expect the BoC to continue erring on the side of caution for the next little while. In that regard, we think the central bank should take further 'insurance' by cutting interest rates again at its March meeting."
Timing remains an issue, though, among those who still expect a second rate cut.
"We continue to believe that given the size of the negative shock on the economy, another rate cut will likely be needed," said Charles St-Arnaud of Nomura, though he ruled out that happening at next week's meeting.
"However, the timing of this cut will depend on incoming data, especially the price of oil, non-energy exports, signs that the weakness affects regions and sectors not linked to oil production and changes in household indebtedness."
- Justin Giovanetti: Alberta forecasts $465-million surplus despite low oil prices
- Barrie McKenna: Central banks should move beyond inflation targets, Poloz says
- Canada's oil sands cash flows to fall by $23-billion over two years: report
BMO profit slips
It's this "unsettled environment" that's taking its toll on Bank of Montreal today.
BMO kicked off first-quarter earnings reports among Canada's big banks with a dip in profit that missed the estimates of analysts.
As The Globe and Mail's David Berman reports, this is setting up the banks for a troubling period.
BMO profit fell 6 per cent from a year earlier, to $1-billion or $1.46 a share.
On an adjusted basis, profit fell 5 per cent to $1.53, falling about 10 cents shy of the estimates.
"BMO's first quarter results reflect the impact of an unsettled environment in which we saw significant movements in oil prices, long-term interest rates and the Canadian dollar," said chief executive officer Bill Downe.
- David Berman: BMO profit misses estimates on impact of 'unsettled environment'
- David Berman: Canada's Big Six facing headwinds head of first-quarter reports
Home Depot warns
You can look at this the other way around, too.
And that's from the viewpoint of American companies trying to cope with a stronger U.S. dollar.
Home Depot Inc., for example, warned today of the hit it will take.
"If currency exchange rates remain where they are today, this would cause a negative impact to fiscal 2015 net sales growth of approximately $1-billion, as well as a negative impact on diluted earnings per share of 6 cents per share," the home improvement chain said as it posted a better-than-expected fourth-quarter report.
Home Depot reported a jump in profit to $1.4-billion (U.S.) or $1.05 a share, as sales climbed 8.3 per cent to about $19.2-billion.
It also unveiled a buyback of $18-billion.
The 'small crisis'
Greece now appears headed for a bailout extension after pulling back on some of its election pledges.
According to reports today, euro zone finance ministers spoke via phone and deemed a six-page document from Athens as good enough to start the ball rolling, approving the extension.
Certain election promises were scaled back so as not to whack its budget.
"Particulars of the reform package have not been officially detailed, with only vague reports trickling out in the press to the effect that the list includes a crack-down on tax evasion and corruption in terms of Greek revenue-raising activities," said economists at Bank of Nova Scotia.
"On the other side of the ledger, Greece has apparently won approval to reduce the extent of its primary budget surplus," they added.
"The bottom line is that Greece seems to have gotten less than it may have hoped for but more than it had before by precipitating a small crisis in the euro zone. There is every reason to expect Greece, therefore, to continue stirring the pot every time that an opportunity presents itself."
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