This weeks top stories include how Canada’s growth forecast has been slashed by the International Monetary Fund, how there are three times more unemployed people in Canada than there are jobs available, how the Bank of Canada is being pushed to define a clear leadership role for regulatory purposes, how Canadian job quality and availability both declined in the past six months, how baby boomers and debt mongers continue to grow their borrowing loads by taking on more debt and how 2011 was a new low for the U.S. housing market.
The European crisis is continuing to affect Canada’s economic recovery and is hindering recovery plans around the globe according to the International Monetary Fund (IMF). The IMF stated on Tuesday that the Canadian economy will now grow by a mere 1.7%, which is 0.3% below what the Bank of Canada (BoC) estimated just last week.
The IMF stated that 2013 would be even slower for economic growth, which contradicts the BoC who expects 2.8% growth expansion in the next year. This still leaves Canada at top growth amongst the Group of Seven industrial nations but that is only due to the fact that the European crisis will continue to plague other countries more than Canada. Italy, Germany and Spain will have negative growth in 2012, according to the IMF, and the euro zone will suffer a recession.
The IMF commented by stating, “The updated projections see global activity decelerating but not collapsing. Most advanced economies avoid falling back into a recession, while activity in emerging and developing economies slows from a high pace.” Global growth is forecasted to slow to 3.3% this year instead of the 4% previously stated. The IMF did continue to state that if Europe continues down the path they are on, the global outlook will have a large revision downward.
If markets raise borrowing costs for vulnerable countries in Europe, it could cause global economic growth slowing another 2% more than expected. Christine Lagarde, head of the IMF, has continued to urge the international community to take immediate and decisive action to prevent a global catastrophe. She commented on the matter by saying, “The longer we wait, the worse it will get. The only solution is to move forward together. Our collective economic future depends on it.” What do you think the outcome will be? Please comment below.
A recent report from Statistics Canada outlines that there were 250 000 job vacancies in Canada during the summer but for every opening, there were 3.3 Canadians looking for work. During that period (Q3), unemployment ranged from 7.1% to 7.3%. Unemployment now stands at a whopping 7.5%.
The highest vacancy rates for job openings were in educational services followed by construction and manufacturing. This report was the first of its kind so there is no previous data to compare to but Statistics Canada has planned to begin collecting data from this point forward and issue a quarterly report on their findings. Labour economist Erin Weir stated that the survey only proves that Canada has a very tight labour market.
Erin commented by saying, “The finding that there were 3.3 unemployed people in Canada for every job vacancy confirms that the main problem is a lack of jobs, not alleged disincentives to work or barriers to labour mobility.” Statistics Canada’s most recent labour report shows that there are 1.4 million Canadians that are officially unemployed. How do you think Canada will fare with such high unemployment numbers? Do you think the numbers will go higher? Please comment below.
The Bank of Canada (BoC) is being pushed to define a clear leadership role to guarantee the safety of Canada’s financial system. Although, this has been in the works for some time now, regulations will ultimately be in the hands of Finance Minister Jim Flaherty.
The C.D. How Institute provided a study that shows Canada‘s current oversight framework has been sufficient but has room for improvement including, but not limited to, beefing up a senior officials committee as well as providing BoC Governor Mark Carney with a senior role while leaving all authority with Mr. Flaherty. This concept falls under macro-prudential regulation, which are policies aimed at protecting Canada’s financial system while preventing problems from spreading to the wider economy.
These changes would include a Senior Advisory Committee that would be strengthened through added legislation and would be provided with more resources at their disposal. The new committee would be jointly chaired by Deputy Finance Minister Michael Horgan and Mr. Carney. The committee is currently made up of Mr. Hogan, who is the chair and Mr. Carney who is just a member.
The overall goal is to give Mr. Carney a more direct role in creating government policy, while trying to keep Mr. Flaherty in his politician role to be accountable for regulatory decisions and changed. The Bank of Canada is not a regulator unlike the central banks in Britain and the United States. More regulatory oversight would be in the best interest of the Canadian economy but it will come with it’s downfalls? Please comment below.
The quality of jobs in Canada seems to be on the decline. Last year Canada saw more people move into self employed positions while the labour market shifted to lower paying positions according to new information in CIBC’s employment quality index. The country’s job growth was mainly attained during the first half of the year. The last six months witnessed barely any growth as the quality of work worsened.
CIBC economists stated, “The impact of a softening pace of job creation is exacerbated by a worsening level of job quality in the Canadian labour market.” Canadians were hit hard as both the quality and quantity of employment declined at the same time. While the index is still above levels witnessed during the recession, it is down one percentage point in just the last year alone.
The index looks at three measures: the mix of paid and self employment, full time versus part time work, and wages for full time jobs. Full time employment was up 1.5% last year but the number of part time positions were down 0.3%. Self employment was up 2% last year but it has to be noted that self employed people earn 10% to 15% less than a regular salaried employee. The largest quality drop was witnessed in Ontario followed by British Columbia.
It seems that a new analysis of Canadians household finances shows that baby boomer and other consumers that are currently in debt just continue to go deeper and deeper. On average, Canadian households owe $1.53 for every $1 of after tax income that they earn according to a recent report from CIBC.
Canada’s household debt to income ratio is the highest ever on record at 153%. It’s just a touch under the 160% witnessed when the housing market in the U.S. collapsed four years ago. This number is accurate as on overall picture but some Canadians have minimal debt while others are more indebted, well past 160% of their income. Rising household debt could cause consumers to spend less, which will cause a large drag on the economy and gross domestic product (GDP) overall.
CIBC chief economist Avery Shenfeld and senior economist Benjamin Tal stated, “While a crisis does not appear imminent, there are cracks emerging in the financial foundation of Canadians that are likely to impair spending growth ahead. That will leave Canada more at the mercy of the global environment, which remains clouded by the impacts of fiscal tightening across much of the developed world.” Where do you think this will all lead? Please comment below.
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December witnessed less home sales south of the border and closed out 2011 as the worst sales year on record for the United States. According to the Commerce Department, new home sales fell in December to a seasonally adjusted annual pace of 307000.
That’s less than half of the 700000 that must be sold in a healthy economy according to economists. Total sales last year were even less than the 323000 sold the previous year and made it the worst year on records dating back as far as 1963. Median sales prices for new homes also declined in the month of December, with builders continuing to cut prices. New home prices were down 2.5% to $210300.
The decline in sales are taking place at the same time that there are signs showing that the depressed housing market may be at the verge of a recovery with construction picking up and sales of pre-owned home rising. This is creating a more confident environment for the builders and hopefully will lead to more consumer confidence in the housing market. Only time will tell.
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