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business briefing

Scotiabank, CIBC urge stimulus

Two of Canada’s big banks want the federal government to pump $20-billion into economic stimulus for a fast jolt to the flagging economy.

Bank of Nova Scotia urged Ottawa to spend that much by mid-2017. Such a measure, the bank said, would equal 1 per cent of gross domestic product and would play into its new economic forecast for GDP growth of 1.3 per cent this year and 2.5 per cent in 2017.

Canadian Imperial Bank of Commerce called for $20-billion in the government’s first year alone, saying the pledges on the table just aren’t enough.

The Liberal government of Prime Minister Justin Trudeau has indeed promised to spend billions in infrastructure stimulus.

But, beyond the recent campaign pledges, there have been no details on the final amount, the targets and the timeline.

And remember, the fiscal outlook has changed rapidly, with Ottawa now forecasting a deficit of $18-billion even without their promised spending.

Canadians will get the details when Finance Minister Bill Morneau unveils his budget on March 22.

While Scotiabank and CIBC are the first to have specific calls, other bank economists have said further stimulus would be welcome, and that the government certainly has the fiscal room to accommodate it.

(Scotiabank’s chief economist, Jean-François Perrault, suggested such a move in an earlier commentary for The Globe and Mail.)

Scotiabank painted a weak economic picture for 2016, particularly for the oil-shocked province of Alberta, and a national unemployment rate that will top 7 per cent this year and next.

It projected the economy of Alberta, which had been the country’s economic engine until the oil rout, will contract by a further 1.9 per cent this year, with a jobless rate rising to 7.5 per cent.

“Our Canadian forecast incorporates our recommendation for federal fiscal stimulus of $20-billion, equivalent to 1 per cent of GDP, implemented during the second of 2016 and the first half of 2017,” said Aron Gampel, Scotiabank’s deputy chief economist.

“This stimulus would be over and above the deficit resulting from weaker economic conditions, estimated for fiscal 2016-17 at $18-billion by the federal government,” he added.

“The stimulus should be designed to: deliver a rapid economic impact; raise Canada’s economic capacity and thus our longer-term growth prospects; and, facilitate adjustments in the provinces most affected by weak commodity prices. Once the Canadian economy no longer requires policy support, targeting a declining ratio of net debt-to-GDP should resume.”

CIBC also weighed in on the stimulus debate today, calling for $20-billion in stimulus over one year.

The government pledges had been for $5-billion in infrastructure spending and a further $5-billion in other measures in their first two years in power.

But CIBC World Markets doesn’t think that’s enough given the country’s economic troubles.

“Federal stimulus under that scenario would be barely more than 0.5 per cent of GDP, arguably too little to do the job, particularly with some provinces applying fiscal brakes,” said CIBC’s Royce Mendes and Avery Shenfeld.

“We see a $20-billion stimulus program with a $40-billion deficit as being more appropriate, but given the political sensitivities, the government might show something closer to $35-billion for 2016-17, while perhaps taking on some further stimulus charged to the outgoing year.”

A scene I'd love to see ...

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Canadian Natural sinks

Canadian Natural Resources Ltd. says 2015 was a “strong operational year” even as it ended off with a slump in fourth-quarter profit.

It’s the latest Canadian energy company to be whacked by the oil price collapse.

Profit fell to $131-million, or 12 cents a share, from $1.2-billion or $1.09 a year earlier.

Adjusted profit from operations came in at a loss of $49-billion, or 4 cents, compared with a profit of $756-million or 69 cents.

President Steve Laut said the year was strong, operationally, despite the plunge in commodity prices as “we were able to reduce original budgeted capital spending by $3.4-billion, but still delivered production growth.”

Brazil's economy slumps

The economic dream that was once Brazil is truly over.

It ended some time ago, but statistics released today showed the once-powerful economy slumped badly last year, contracting by 3.8 per cent.

Today’s numbers mark the steepest contraction in about 25 years in Brazil, which is in an economic and political mess.

“Looking ahead, the outlook for 2016 isn’t much better,” Société Générale said today, before the statistics were reported.

Société Générale forecasts the economy will shrink a further 3.2 per cent this year, and 1.7 per cent in 2017. And 2018 will be just flat, it projects.

Home sales surge

The record-shattering pace of Toronto’s housing market shows no sign of ending as sales far outpace new listings.

Sales in the Toronto area climbed more than 21 per cent in February from a year earlier. Even factoring in the extra leap year day, sales topped the previous February, 2010, record, the Toronto Real Estate Board said today.

The average home price in the Toronto area climbed almost 15 per cent to $685,278, while the MLS home price index, deemed a better measure, showed a gain of 11.3 per cent.

In Toronto’s 416 area, the average price of a detached home is now above $1.2-million. In the surrounding 905 area, it’s now $816,705, according to TREB statistics.

“The number of new listings entered into TREB’s MLS system was also up on a year-over-year basis, but by a lesser 8.2 per cent,” the group said.

“The fact that the annual rate of sales growth outstripped the annual rate of new listings growth shows a tightening of market conditions compared to last year.”

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