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Stories Report on Business is following today:
Economy surges in first quarter
Canada's economy is inching back to its pre-recession peak. The economy expanded in the first quarter at an annualized pace of 6.1 per cent, Statistics Canada said today, a showing that was stronger than economists had expected, and the strongest growth in more than a decade. As a measure of comparison, that compares to 4.9 per cent in the fourth quarter of last year, and just 3 per cent in the United States in the first quarter.
"Residential investment increased for a fourth consecutive quarter, as did consumer spending on goods and services," Statistics Canada said this morning. "Export and import volumes both rose for a third consecutive quarter, with growth in imports outpacing growth in exports in the first quarter."
Economists Yanick Desnoyers and Matthieu Arsenau noted in a report today that the economy is "on the verge of expansion" following the depressed levels of the recession.
"Canadian real GDP is only 0.4 per cent from its pre-recession peak and domestic demand is already above it," they wrote. "... Moreover, Canadian employment is 0.8 per cent off its peak copared to -5 per cent in the U.S."
Business investment rose 0.2 per cent. Spending on machinery and equipment rose 1.8 per cent, Statistics Canada said, though it is still 23 per cent below the peak in the first quarter of 2008.
"The resumption in business investment was a missing ingredient until [the first quarter] and is encouraging," said Toronto-Dominion Bank economist Diana Petramala. "Firming up of business investment and a continued healthy performance in Canadian exports related to a strengthening U.S. economy through the second half of this year should help to offset some of the weakness stemming from domestic demand."
The Statistics Canada report also shows personal debts rising, as mortgage growth surged $76.4-billion annualized in the first quarter from $59.8-billion per cent in the fourth quarter of last year. Consumer credit for other items dipped about 15 per cent at the same time.
People are using more credit for homes, but less for other items, Ms. Petramala said.
Based on calculations, she said household debt as a percentage of personal income probably rose to a record 148 per cent.
The Canadian dollar picked up steam after the report. Read the story
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Markets await Bank of Canada
This morning's GDP report is the latest evidence of a stronger economy, and the last piece of data, before Bank of Canada Governor Mark Carney and his colleagues set interest rates tomorrow. Markets increasingly believe the central bank will hike its benchmark overnight rate, now at an emergency low of 0.25 per cent, for the first time since before the financial crisis and recession began. Economic growth and hotter inflation warrant a rate increase, economists say, but the recent market turmoil sparked by the euro crisis could delay such a move. Mr. Carney must weigh the former against the likelihood that Europe's debt crisis will continue to roil global markets or dampen global economic growth.
"Fear of another global financial crisis like the one sparked by the collapse of Lehman Brothers, or rising worries of a double-dip recession, are two good reasons to take things slow, but only if one believes that there is reasonable probability of either of those two events happening," said economist Meny Grauman of CIBC World Markets.
Added research analyst Shahrzad Mobasher Fard of Toronto-Dominion Bank: "Accompanying a [Bank of Canada]move could be a dovish statement outlining European sovereign debt concerns as the dominant downside risk to the outlook. Faced with the prospect of a possible pause in the hiking cycle if financial turmoil were to resurface, markets would refrain from pricing in too much near-term tightening. The absence of such dovish overtones in the [Bank of Canada]statement would likely induce a bond selloff and push the Canadian dollar closer to parity."
Here are four things to keep in mind, courtesy of BMO Nesbitt Burns deputy chief economist Douglas Porter:
- If the Bank of Canada hikes rates tomorrow, it will be the first central bank among the G7 to do so.
- Mr. Carney has not yet "presided over" a rate hike in his short time as governor.
- The central bank "tripped up the market" once before under Mr. Carney, when it remained on hold in July, 2008, when markets expected a cut in the overnight rate.
- If the bank does not cut rates, it "technically" will have met the conditional commitment it made more than a year ago to hold the line until mid-2010, though it killed off that pledge last month as it signalled it could soon begin tightening monetary policy.
Read
Bank of Canada's Carney to take centre stage
Central bank's decision a product of intensive research and collaboration
Auto sales rebound
The global auto industry is rebounding and has returned to profitability, Bank of Nova Scotia said this morning. The increase in car sales around the world slowed in April to 13 per cent, compared to the 25-per-cent surge in the first quarter, but this was due largely to the end of cash-for-clunkers programs in Germany, Scotiabank auto analyst Carlos Gomes said in a report. Outside of Europe, sales continued to strengthen, up 23 per cent.
"Despite concerns that recent risk escalation emanating from Europe will spread across the globe, the outlook for the global auto market continues to improve," Mr. Gomes said. "... The global auto industry has returned to profitability, with the five largest auto manufacturers posting earnings of $5.5-billion (U.S.) in the first quarter of 2010. This improvement represents a sharp turnaround from annual losses averaging in excess of $22-billion from 2007 through 2009. Profitability improved in every region last quarter, especially in North America, with the five larges auto makers returning to profitability in the region."
China warns on euro crisis
Europe's debt crisis threatens to push global economies back into recession, China's Premier Wen Jiabao warned today, saying governments must watch closely and adopt measures to ensure that doesn't occur.
"The world economy is stable and beginning to revive, but this revival is slow and there are many uncertainties and destabilizing factors," Mr. Wen told a group of business leaders in Tokyo. "Some countries have experienced sovereign debt crises, for example Greece. Is this kind of phenomenon over? Now it seems that it's not so simple. The sovereign debt crisis in some European countries may drag down Europe's economic recovery."
India's economy expands 8.6 per cent
India's economy is surging, expanding 8.6 per cent in the first quarter from a year earlier, according to government data today. The official reading puts even more pressure on the country's central bank to raise interest rates. "The biggest threat in India is from inflation and the risk that the economy overheats," Capital Economics economist Kevin Grice told Bloomberg News. "This, in the end, would force the Reserve Bank of India to aggressively high policy rates, which would inevitably bring far lower growth later on."
Sales of iPad hits 2 million
Sales of the iPad have now topped 2 million in two months, Apple Inc. said today. The popular tablet computer marked its global launch Friday in Canada, Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and Britain.
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