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business briefing

Briefing highlights

  • Budget tally a 'fairly striking' $126-billion
  • Cameco puts Rabbit Lake into hibernation
  • Valeant nears CEO hire
  • Inflation cools, retail sales rise
  • Should your company pay you to sleep?

The tally

For anyone who lost track of where Canada stands after government budget season, it’s $126-billion.

That represents combined federal-provincial deficits from fiscal year 2015-16 to 2018-19, the bulk of it resting on Ottawa’s shoulders.

This isn’t to argue against government stimulus amid an oil shock that has hit three provinces hard, but rather just to show the sum calculated by Warren Lovely, the chief of public sector research and strategy at National Bank of Canada.

“For a country that didn’t really slip into a legitimate recession, the deterioration in Canada’s combined federal-provincial fiscal position over the past 12 months is fairly striking,” Mr. Lovely said in a recent report.

Looked at another way, that’s in the area of 6 per cent of the country’s nominal gross domestic product, a number that is “not astronomical but hardly trivial.”

Mr. Lovely didn’t offer an opinion, but he did note that deficits are “a notoriously slippery slope.”

As in, it frequently takes two years to hit a peak deficit after a shock, and then takes two to four times as long to balance the books again.

As the chart below shows, Mr. Lovely cited eight examples, four from the financial crisis and the rest from the oil shock.

“Want to assign a letter shape to this pattern?” he said.

“It’s certainly not a ‘V’ nor a ‘U,’” he added.

“An ‘L’ might be a more appropriate characterization, which in today’s fiscal world could very well stand for ‘Long time healing.”

One last point here from Mr. Lovely: Markets should take official budget numbers - economic, balances and debt - with “a grain of salt.”

“GDP growth rates are always something of a moving target, to say nothing of hyper-volatility in commodity prices and exchange rates, and an uncertain interest rate backdrop. Resulting budget balances can turn swiftly, while in some cases political priorities have evolved.”

A comment I'd love to hear ...

“In hindsight, that may not have been the best $90,000 investment I’ve ever made.”

VW takes hefty charge

The fuel emissions scandal hit Volkswagen hard today as the auto maker unveiled a charge of €16.2-billion, or more than $18-billion (U.S.).

Volkswagen also cut its dividend.

“The largest share of the special items amounting to €16.2-billion comprises provisions for the emissions issue, among other things for pending technical modifications and customer-related measures as well as global legal risks,” the auto maker said.

Cameco cuts jobs

Cameco Corp. is putting a Saskatchewan project into hibernation, cutting almost 600 jobs in Canada and the United States.

About 500 jobs will be lost at its Rabbit Lake operation in Saskatchewan, with another 85 jobs to go in the U.S., both employees and contractors, the uranium producer said last yesterday.

“Unfortunately, continued depressed market conditions do not support the operating and capital costs needed to sustain production at Rabbit Lake and the U.S. operations,” chief executive officer Tim Gitzel said in a statement.

Rabbit Lake “will be placed in a safe care and maintenance state allowing Cameco the option to resume production when market conditions significantly improve,” the company said.

Valeant nears CEO hire

Valeant Pharmaceuticals International Inc. is reportedly close to hiring the chief executive officer of U.S. drug maker Perrigo as its new commander.

The choice of Joseph Papa as Valeant’s CEO could be announced soon, news reports said.

That follows the announcement that Mike Pearson was leaving the troubled company.

How we're shopping

Retail sales in Canada rose 0.4 per cent in February, Statistics Canada said today, marking the second straight month of gains.

The agency also reported that annual inflation slowed in March, to 1.3 per cent from February’s 1.4 per cent.

“February’s increase in retail sales surprised consensus [among economists], coming after massive gains the prior month,” said senior economist Krishen Rangasamy of National Bank.

“With such a flying start, the quarter is looking great with regards to consumption spending because even if we assume no change in March, real retail sales will grow a stunning 8.4 per cent annualized in [the first quarter], the best performance in six years,” he added.

A scene I'd love to see ...

Photo illustration

Video: Should your company pay you to sleep