Skip to main content

The Globe and Mail

Ratings firms warn Canada's Jim Flaherty not to cut too deep, too fast

These are stories Report on Business is following Tuesday, Feb. 14, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

Follow Michael Babad and Globe top business news on Twitter

A twist on debt Here's a twist: Two of the world's major ratings agencies are warning the Canadian government not to cut too fast in a race to balance the books.

Story continues below advertisement

Analysts at Moody's Investors Service and Fitch Ratings told The Wall Street Journal that Finance Minister Jim Flaherty need not speed up cuts as he prepares to unveil his next budget. He risks harming the economy if he does that, they said.

"From our perspective there is leeway there and doing it too rapidly has negative effects and can be counterproductive," Steve Hess of Moody's, its key analyst on Canada, told the newspaper. "... It is a risk if they move too fast."

Similarly, Fitch analyst Shelly Shetty said "you don't have to swallow an extremely bitter pill if you are not sick."

It's not necessary for Mr. Flaherty to beat his target of wiping out the deficit in 2016, she said.

Canada is seen as in a strong fiscal position, though economic growth is slowing and its jobless rate rising, standing now at 7.6 per cent. Mr. Flaherty has said he stands ready to act on unemployment.

TransCanada boosts dividend TransCanada Corp. today hiked its dividend as it posted stronger fourth-quarter results, but pushed back the date for a reborn Keystone XL pipeline.

TransCanada reported its profit rose to $375-million or 53 cents a share, compared to $269-million or 39 cents a year earlier. Its quarterly dividend moves to 44 cents, or $1.76 annualized, a 5-per-cent increase that the company said marked the 12th year in a row of higher dividends.

Story continues below advertisement

TransCanada also continued to sound an optimistic note on its controversial Keystone XL project, which it is being force to reroute, although, based on today's statement, has delayed its expected launch date, The Globe and Mail's Shawn McCarthy reports.

"The company, while disappointed, remains fully committed to the construction of Keystone XL," it said in a statement.

"Plans are already under way on a number of fronts to largely maintain the construction schedule of the project. TransCanada will re-apply for a Presidential Permit and expects a new application would be processed in an expedited manner to allow for an in-service date of early 2015."

After the U.S. government rejected its plans, TransCanada had said it was looking at late 2014.

UBS Securities Canada analyst Chad Friess called the shift in timing a disappointment.

"No new information was provided on the timing for a refiling of the application or any alternative solutions involving accelerated approval or initial construction of sections of the project," he said. "The company did mention that plans are underway on a number of fronts to maintain the construction schedule of the project."

Story continues below advertisement

Japan acts to spur economy The Bank of Japan surprised markets today by pumping ¥10-trillion more into its asset-buying program, though, of course, it held its key rate at virtually zero.

The central bank also clarified that its inflation target is 1 per cent for now.

"For the time being, the bank will pursue powerful monetary easing by conducting its virtually zero interest rate policy and by implementing the asset purchase program mainly through the purchase of financial assets, with the aim of achieving the goal of 1 per cent in terms of the year-on-year rate of increase in the CPI," the Bank of Japan said.

"The bank will continue pursuing the powerful easing until it judges that the 1-per-cent goal is in sight on the condition that the bank does not identify any significant risk, including the accumulation of financial imbalances, from the viewpoint of ensuring sustainable economic growth."

Before now, the inflation target had been between zero and 2 per cent, and "this will help the bank keep up its fight against deflation by becoming more specific although 1 per cent is still on the low side," said senior economist Jennifer Lee of BMO Nesbitt Burns.

Japan has been struggling under a strong currency, and attempts to climb back from the natural disasters of almost a year ago.

"The BoJ used its inflation target as its rationale for undertaking a policy that it hopes will be inflationary," said Derek Holt and Dov Zigler of Scotia Capital.

"Over the past 20 years, inflation targets have typically been thought of as inflation-fighting tools, but the same monetary policy logic that argues for preventing inflation from exceeding a stable price-growth target can also be employed to argue that if inflation is below that target pro-inflation policies are necessary."

Greece, Portugal in deep trouble Not that there was ever any doubt about the depths of the troubles in Greece and Portugal, but fresh economic readings today show just how bad they are.

Greece, believed to be in its fifth year of recession, reported today that its economy contracted by 7 per cent, annualized, in the fourth quarter, following on the heels of a 5-per-cent drop in gross domestic product in the third quarter.

Portugal's economy contracted by 1.3 per cent, compared to the 0.6-per-cent decline in the third quarter.

Hackers said to target Nortel Hackers believed to be operating in China stole seven passwords that allowed them "widespread access" to Nortel Networks Corp.'s computer network for almost 10 years, The Wall Street Journal reports today.

Among the passwords from senior officials of the company, once the star of Canada's tech sector and a market darling at its peak, was one belonging to the chief executive officer, the newspaper said.

The hackers were snooping in Nortel's system since at least 2000, swiping technical briefings, reports on research and development, the company's business strategy and other documents, said the Journal, quoting a 19-year company official who spearheaded a six-month internal probe into the hacking.

Brian Shields told the newspaper the hackers had "access to everything" and they had "plenty of time."

The incident at Nortel, which collapsed into bankruptcy protection and was sold off piecemeal, raises obvious questions about what may have been taken from the company and where it ended up.

Also, according to the newspaper report, officials at Nortel did not address the issue before the assets were on the block, and did not tell suitors about what happened.

China's Washington embassy responded to the Journal, saying that "cyber attacks are transnational and anonymous" and one shouldn't assume the Nortel attack came from China without hard proof.

U.S. retail sales less than expected Something of a disappointment this morning where the U.S. consumer is concerned, though not as bad as the headline number would suggest.

Retail sales in the United States increased by 0.4 per cent in January from December, less than economists had expected, though pulled down by lagging car sales, the U.S. Commerce Department said today. Remember that December, the key holding shopping month, had been weak.

But by removing autos from the calculation - vehicle sales slipped 1.1 per cent - retail sales climbed 0.5 per cent in January.

"The most important category of this report (for those of you waiting to exhale) is core retail sales (sales excluding autos, gasoline and building materials) and that result was solid," said senior economist Jennifer Lee of BMO Nesbitt Burns. "Core sales, which are fed into the GDP report, jumped 0.7 per cent, which is a good start to the quarter after a weak end to 2011."

Apple eyes smaller screen Some news reports of late suggest Apple Inc. is working on a new tablet with a screen smaller than that of its wildly popular iPad.

Apple is working with suppliers on a computer with a screen of about 8 inches, compared to the 9.7 inches of the iPad 2, The Wall Street Journal reports today.

Some reports say Apple is poised to unveil a new version of the iPad next month.

Business ticker

Report an error
About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.