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business briefing

These are stories Report on Business is following Tuesday, March 31, 2015.

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Not yet atrocious
"Atrocious" may be too strong a word at this point, but Canada's economy is still just limping along.

As The Globe and Mail's David Parkinson reports today, the economy stalled out in January, shrinking by 0.1 per cent amid the oil crash and a bitter winter.

Today's reading from Statistics Canada was somewhat better than the decline of 0.2 per cent in gross domestic product expected by many economists, but it's also a slump from expansion of 0.3 per cent in December.

And it sets up the first quarter for an exceptionally lame showing. Or, as Bank of Canada Governor Stephen Poloz put it recently, "atrocious."

The use of "atrocious," of course, reflects Mr. Poloz's oft-colourful way of speaking, which is refreshing in a central banker, and isn't necessarily indicative of any new thought.

The central bank already knows that the first quarter, which ends today, is falling well shy of an original forecast that called for annualized economic growth of 1.5 per cent.

And just because today's number was a bit better than expected, the quarter as a whole may still show a contraction.

And any way you cut it, according to one economist, the first quarter is going to mark "the worst performance in years."

Mr. Poloz has said he's keeping his "fingers crossed" going forward.

We'll see.

Some economists believe the economy will continue to show weakness – of say, growth below 1 per cent – through the first three quarters of the year.

Here's what analysts are saying today:

"January was weak, but not 'atrocious,' as the Canadian economy started the year with a modest decline. …  Over all, while Q1 will likely still be no better than 1-per-cent growth, the issue for monetary policy will mostly be about how much of that weakness extends into the subsequent two quarters." Avery Shenfeld, CIBC World Markets

"There's no denying that the Canadian economy had a poor start to 2015, but the drop in GDP wasn't nearly as bad as some feared. For now, our call for Q1 GDP growth of 0.5 per cent is reasonable, but there remains downside risk. With February activity likely to be weak as well, there's a decent chance that Q1 GDP could be negative. The soft data are consistent with Poloz's expectations for the oil-shock-related weakness to be more front-loaded. That suggests the Bank of Canada will probably look through the current weakness. The big question is whether Q2 rebounds as the BoC anticipates - that will likely be a key driver for monetary policy." Benjamin Reitzes, BMO Nesbitt Burns

"January GDP wasn't as bad as expected. While the expected output plunge in retail, wholesale and manufacturing sectors was confirmed, that was more than offset by gains elsewhere, including oil and gas. Producers may be trying to offset the impact of low crude prices by boosting volumes to the max ― output is now close to all-time highs in the oil and gas sector. Utilities output soared as demand for heating jumped in a very cold month. While the latter could firm up further in February, other sectors may be hurt somewhat by atypically cold temperatures in that month. Another GDP contraction is therefore possible in February. We continue to expect Q1 GDP growth to come in below 1 per cent annualized, the worst performance in years." Krishen Rangasamy, National Bank

"Going forward, ongoing strength in the U.S. economy and a weak loonie should help to bolster demand for Canadian-made goods, which certainly bodes well for Canada's export sector.  Moreover, as oil prices begin to recover towards the end of this year and into 2016, business and consumer sentiment should follow suit, helping to buoy the overall economy.  As such, we expect economic activity to bounce back above 2 per cent (annualized) in the second half of this year." Dina Ignjatovic, Toronto-Dominion Bank

"As things stand now, we estimate the economy barely grew by 0.5 per cent annualized in the first quarter. That's still considerably weaker than what the Bank of Canada had forecast and, therefore, suggests that a rate cut in April shouldn't be ruled out … We still think that the sharp drop in oil prices will be more negative for Canadian economic growth and underlying inflation than the bank is hoping for. Accordingly, we still expect another 25-basis-point rate cut at some point soon." David Madani, Capital Economics

Greece in spotlight. Still
One round of Greek talks with its lenders is over, but, as always, there's more to come.

The so-called technical discussions have ended on Greek reforms, but more talks are expected.

"On the bright side, although the round of 'technical talks' are over, both sides continue to discuss the round of reforms that Greece has proposed," said senior economist Jennifer Lee of BMO Nesbitt Burns.

"On the not-so-bright side, the talks are 'not there yet,' and the longer this drags on, the more markets worry that they will fail, particularly as key payment dates are coming up next week."

CPPIB takes ABP stake
For the investment arm of Canada's pension fund, it's not just any port in a storm.

The Canada Pension Plan Investment Board has joined with Hermes Infrastructure to buy at least 30 per cent of Associated British Ports for $2.9-billion.

A further 3.33 per cent is possible in ABP, which owns and operates more than 20 ports in the region and which the CPPIB said is the leading such group in the U.K.

"This investment is an important addition to our global infrastructure portfolio and fits well with CPPIB's long-term investment mandate."

Deflation fears ease
Deflation concerns are easing in Europe, but the labour market remains ugly.

Consumer prices are believed to have dropped 0.5 per cent in the euro zone this month, a better showing than February's 0.3 per cent, according to the Eurostat agency today.

The jobless rate, meanwhile dipped to 11.3 per cent in February, down from the 11.4 per cent of January.

More than 18 million people in the monetary union can't find work.

"The numbers are still gaudy but at least improving," economists at Bank of Nova Scotia said of the jobless data.

"Italy moved in the wrong direction at 12.7 per cent vs. 12.6 per cent in January, but there has been very strong improvement since November when unemployment stood at 13.2 per cent," they added.

"German unemployment in March ticked lower too to 6.4 per cent vs. 6.5 per cent in February."

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