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Week of central bank change (Meaningful for some, for others not so much)

These are stories Report on Business followed this week.

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Big steps
Canada's finance minister surprised observers with his choice for a new central bank governor, skipping over the No. 2 man and opting for an outsider.

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Stephen Poloz, named Thursday to succeed Mark Carney, worked at the Bank of Canada when he began his career, but left for other climes, most recently to head Export Development Canada, where he played a huge role.

Tiff Macklem, the senior deputy governor, had been expected by Bay Street to get the nod, but Finance Minister Jim Flaherty chose to go elsewhere.

The 57-year-old Mr. Poloz will take the helm of the central bank at a time of heightened uncertainty, slowing growth and still-high unemployment, and a cooling housing market.

"We're in a recovery mode, but in a recovery that is not as robust as was anticipated ... and I think we will have to stimulate the economy for a certain amount of time," Mr. Poloz said.

His comments came after Mr. Flaherty announced Mr. Poloz as his choice to replace central bank Governor Mark Carney, who is heading to the Bank of England, over Tiff Macklem, the current senior deputy who had been seen as the front runner.

Baby steps
The European Central Bank finally cut its benchmark interest rate, but the move is expected to achieve little in the face of a region hobbled by recession and intolerable levels of unemployment.

The ECB trimmed its key rate by one-quarter of a percentage point to 0.5 per cent in the same week that the EU's statistics agency showed the jobless rate in the euro zone climbing to 12.1 per cent, with more than 19 million people out of work.

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That varies across the 17-member monetary union, of course. One need only look at Greece, Spain and Portugal, whose jobless rates stand at 27.2 per cent, 26.7 per cent and 17.5 per cent, respectively, to gauge the trouble.

The ECB cut its main refinancing rate for the third time under Mario Draghi - a move that may very well trigger lower borrowing costs across the euro zone," CIBC World Markets economists said in a commentary titled "Baby steps when leaps are needed."

However, that may not be enough to spark economic activity to life. For example, falling business lending rates in recent years has done little to trigger a rebound in corporate lending. Indeed, loans have been falling on an annual basis, despite what appears to be an easing in credit conditions for businesses."

'Deafening silence' among retailers
Loblaw Cos. Ltd. says it is moving forcefully to prevent another tragedy in Bangladesh, but its executive chairman cites a "deafening silence" in the broader retail industry.

As The Globe and Mail's Marina Strauss reports, the large Canadian grocer has pledged compensation for the families of victims killed when an illegally built building collapsed last week.

Several factories were housed there, including a manufacturer of Loblaw's Joe Fresh clothing.

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Executive chairman Galen G. Weston announced this week that Loblaw will put its own staff in foreign factories and at the same time establish building standards for suppliers.

"I am troubled by a sequence of events, or management practices that saw fit to send apparel workers back into this building after it was declared dangerous," he said.

In the markets
Well, that was some kind of party.

Both the S&P 500 and the Dow Jones industrial average closed out the week at record highs, powering ahead on report from the U.S. Labor Department that showed the jobs market picking up steam.

The S&P 500 breached the 1,600 mark while the Dow topped 15,000 at one point Friday, though closed just shy of that. Still, both indexes gained about 1 per cent on the day.

Toronto's S&P/TSX composite index rose 1.8 per cent over the course of the week.

"In a sudden twist, while the market spent much of the week digesting soft spring data, the Canadian economy came roaring back to life," said senior economist Robert Kavcic of BMO Nesbitt Burns, referring to a Statistics Canada report earlier in the week that showed gross domestic product expanding by a better-than-expected 0.3 per cent in February, while January's reading was revised up.

"Real GDP topped expectations in February, prompting an upgrade to our Q1 growth forecast (to 2.3 per cent from 1.5 per cent), which was then confirmed by a solid March trade report," he added.

"That said, we still expect the Canadian economy to trail its U.S. counterpart through 2013, and the equity market appears to share that view. While U.S. indices were punching new highs this week, the TSX still sits about 20 per cent shy of its 2008 peak."

The week in Business Briefing

The week in Streetwise (for subscribers)

The week in Economy Lab

The week in ROB Insight (for subscribers)

Required reading
If Venezuela and Mexico ever get their act together, they could easily supply oil to the U.S. market, Barrie McKenna writes.

Business groups, especially in Alberta, say Ottawa went too far in the overhaul of rules for temporary foreign workers, Tavia Grant, Bill Curry and Steven Chase report.

Apple Inc. unveiled the biggest corporate bond offering on record as U.S. companies rush to take advantage of cheap borrowing rates. Joanna Slater reports.

Catalyst Capital chief Newton Glassman says he has a plan to create a fourth competitor in a market controlled by three big wireless carriers. Boyd Erman and Rita Trichur report.

Ontario's new budget gives small businesses and manufacturers a break, Richard Blackwell reports.

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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


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