Skip to main content

The Globe and Mail

Will decade be an 'economic rerun of the 1970s'?

These are stories Report on Business is following Wednesday, May 9, 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

The long decade As Europe struggles and plunges ever deeper into uncertainty today, Société Générale makes an intriguing comparison to the 1970s, sans the inflation.

Story continues below advertisement

"The 2010s are going to be an economic re-run of the 1970s, but with much higher levels of both public and private sector debt across developed economies," said Kit Juckes, chief of foreign exchange at the European bank.

"But while the music won't be as much fun, the retreat of trade unions and the march of globalization mean we can also do without the inflation that accompanied the 1970s. That makes getting debt levels under control harder, but it makes keeping interest rate levels down easier."

There are, of course, extreme differences between the 1970s and now - as Mr. Juckes puts it, other than hair, Bowie and the Grateful Dead, and more related to inflation and the severity of debt levels.

But overall, he looked at the latest work by Carmen Reinhart and Kenneth Rogoff, who studied 26 high-debt periods, and how they average 23 years, with slower growth to the tune of about 1 per cent.

He also looked at a chart produced by another economist that studied economic growth in Britain, and attempted to put in terms of Europe and the United States.

"Broadly, growth was much weaker in the 1970s and will be in the 2008-2016 period," he told me.

"It seems to me about right to assume that we are in a long (let's call it 23 years +/- 10 years) of 'debt crisis' which will see growth 1 per cent slower than before, ie, say 1 per cent in Europe and the U.K., and 1.5 per cent to 2 per cent in the U.S."

Story continues below advertisement

The report came as developments in the embattled euro zone, or lack thereof, highlighted the problems of the post-crisis era.

Greece, of course, remains the focus overseas, amid a political stalemate that threatens its debt payments, its rescue, and even its membership in the 17-member euro zone, as The Globe and Mail's Brian Milner writes in today's Report on Business.

Again, fears are spreading, with a wary eye also on Spain, whose bond yields spiked today.

It's the second-day of a mandated three-day attempt by the leader of a Greek leftist party, which ran a surprising second in Sunday's election, to try to form a coalition government. Notable is that his group wants to rip up the agreements that were struck to rescue Athens.

However, it appears unlikely he'll be able to pull it together, likely meaning further elections in June. Greece is expected to get most of its next bailout tranche, regardless, with just some held back.

"In Greece the game of high stakes poker between the various politicians striving to form a government and the EU continues to play out in the full glare of the market's gaze," said senior analyst Michael Hewson of CMC Markets.

Story continues below advertisement

"Financial markets have come to know a new player on the Greek political scene in the name of Alexi Tsipras, leader of the left wing Syriza party, who is trying to form a government in the wake of the weekend elections," Mr. Hewson said in a research note today.

"He has pledged to tear up the bailout agreement declaring it 'null and void,' while also insisting that Samaras and Venizelos revoke their pledges to the EU with respect to the bailout agreement. Neither leader seems inclined to do this. Tsipras has another two days to try and form a working government and while he is unlikely to succeed the fact that his party finished second in the polling shows the discontent within Greece at this moment as austerity measures continue to crush the economy."

The angst is being felt across the continent and rippling through global markets.

"With concerns about the solvency of Spanish banks rising in the wake of the Bankia story and the impending likelihood that ratings agency Moody's could start cutting credit ratings on a raft of European financial institutions, the prospects of more stress in the European banking sector looks set to increase," Mr. Hewson added.

Germany powers ahead As The Globe and Mail's Kevin Carmichael writes today, there's no stopping the economic engine that is Germany.

Despite the troubles of the hobbled euro zone, Germany in March boosted exports for the third month in a row, its trade surplus widening to €17.4-billion from €14.9-billion in February.

For its European partners, the latest numbers are a reminder of the relative uncompetitive nature of their economies.

Telus kills plan Faced with defeat at a vote today, Telus Corp. , one of Canada's major telecommunications companies, has killed a share-consolidation plan opposed by a U.S. hedge fund.

Mason Capital Management LLC, which controls almost 19 per cent of the company's common voting stock, had pledged to try to vote it down, and Telus withdrew the proposal early today, The Globe and Mail's Rita Trichur reports.

The plan would have converted non-voting shares into common on a one-for-one basis, which Mason claimed would mean a better return for the non-voting class, which have traded at a lower price.

"If Mason Capital's shares are factored out, Telus' proposal was on track to be overwhelmingly approved by both classes of shareholders, with 92.4 per cent of voted shares in favour of the proposal," the company said.

Of course, it couldn't 'factor out' Mason.

Unstoppable train Bill Ackman scored another win today.

The U.S. activist shareholder won the support of another leading proxy adviser, Glass Lewis & Co., for his dissident slate at Canadian Pacific Railway Ltd. , The Globe and Mail's Jacquie McNish and Brent Jang report.

Mr. Ackman's Pershing Square Capital Management is pushing for change at the railway, heading to an all-but-determined showdown now at a May 17 meeting.

Among other things, Mr. Ackman wants to replace chief executive officer Fred Green with Hunter Harrison, former chief of CP's rival Canadian National.

Quebecor profit rises Quebecor Inc. today posted a sharply higher quarterly profit, due largely to fluctuating interest rates that allowed the Canadian media giant to gain from previously issued options, The Globe and Mail's Steve Ladurantaye writes.

The Montreal-based company posted a profit of $72.9-million, up 52 per cent from a year ago. Revenue was $1-billion, up 7.4 per cent.

The bulk of the increase in profits - $71-million - wasn't because of anything the company's business segments did, however, but rather "due to a favourable change in the fair value of early settlement options caused by interest rate and credit premium valuations."

Torstar hikes dividend Canada's Torstar Inc. is hiking its dividend by 5 per cent, despite a weak advertising market that pushed the company's revenue lower in the last quarter, Mr. Ladurantaye reports.

Chief executive officer David Holland said Torstar results were "solid in the quarter given the environments" as he announced the increased payout to investors and warned the advertising market for the Toronto Star and its stable of smaller papers remains weak.

Tims boosts profit Set aside for a moment that the company still refers to its customers as "guests," which for some reason bugs me unreasonably. Focus instead on the fact that Tim Hortons Inc. continues to chalk up profit and revenue gains.

Canada's coffee and doughnut king today posted a 10-per-cent gain in first-quarter profit of $88.8-million, or 56 cents a share, diluted, compared to $80.7-million or 48 cents a year earlier.

Revenue climbed more than 12 per cent to $721.3-million.

Same-store sales, a key measure in the industry, climbed 5.2 per cent in Canada and 8.5 per cent in the United States.

Agrium profit slips Agrium Inc. today recorded a dip in first-quarter profit, but pointed to a strong start to the spring season.

The Canadian agribusiness company earned $155-million (U.S.) or 97 cents a share, diluted, in the quarter, compared to $171-million or $1.09 a year earlier. The latest quarter included a pre-tax hit of $13-million.

Agrium also forecast earnings per share for the first half of the year of $5.50 to $6.10.

"Crop prices remain well above historical levels, providing a strong economic incentive for growers to optimize use of all crop inputs in order to maximize their yields and profitability," said chief executive officer Mike Wilson.

"Favourable weather has enabled growers to get a very early start on spring planting and applications and we have seen strong movement of nutrients and other crop inputs, as some of [the retail unit's]business was brought forward into the first quarter. Our wholesale operations are expected to benefit in the second quarter from rising nitrogen and falling North American natural gas prices."

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.