These are stories Report on Business is following Wednesday, Nov. 13, 2013.
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Canada's finances
Canada's finance minister is winning plaudits for his fiscal numbers. But some of the country's provinces, not so much.
"Ottawa has managed to keep its finances on the straight and narrow through a prolonged period of sluggish growth," chief economist Douglas Porter of BMO Nesbitt Burns said of Jim Flaherty's economic and fiscal update yesterday.
"Exceptionally low borrowing costs and fewer spending pressures than faced by the provinces have helped."
As The Globe and Mail's Bill Curry and Carrie Tait report, the Canadian government now forecasts a budget surplus of at least $3.7-billion for fiscal 2015-16 given spending cuts, control of civil service salaries and asset sales.
That forecast, unveiled by Mr. Flaherty in Edmonton, is far fatter than the original projection of $800-million.
According to the government's new fiscal forecasts, the 2013-14 deficit is expected to come in at $17.9-billion and the 2014-15 shortfall at $5.5-billion. By 2018-19, the surplus would widen to almost $10-billion.
The new projections, said deputy chief economist Derek Burleton of Toronto-Dominion Bank, move Canada's Conservative government "one big step closer" to meeting its goal of a balanced budget by its 2015-16 fiscal year.
But issues remain.
"The re-emergence of a surplus would certainly provide the government with more fiscal wiggle room as it heads into a likely 2015 election," Mr. Burleton said.
"Still, surpluses expected to be in the order of 0.2-0.4 per cent of GDP would pale in comparison to the vast 'status-quo' surpluses enjoyed by the Chrétien government in the late 1990s," he added, referring to the showing under former Liberal prime minister Jean Chrétien.
"Those surpluses were ultimately divvied up between tax cuts and spending increases," Mr. Burleton said in a report on Mr. Flaherty's fall update.
"The government's plan to income split would cost roughly $2-billion alone. And after such an extended period of restraint, there will be increased pressure to spend in a multitude of areas. Tough decisions on how to allocate the limited surplus will be required."
The improved showing in Ottawa stands in stark different to the fiscal performances of some of the provinces.
"Over all, the combined provincial deficit is still on pace to fall by roughly $4-billion this fiscal year after Ontario stuck to its target, but there is downside risk in a few other provinces," said senior economist Robert Kavcic of BMO Nesbitt Burns.
He pointed specifically to Quebec and Nova Scotia.
"The province has been projecting a return to surplus, but that now looks questionable," he said of Quebec.
"Nova Scotia has not updated its fiscal outlook since the Liberal election win, but let's just say there is downside risk to the surplus projection maintained by the prior NDP government."
Manitoba, Ontario, New Brunswick, Prince Edward Island and Newfoundland and Labrador are particular laggards, with projected deficits out to 2014-15 at the earliest, for PEI and Newfoundland and Labrador, and 2016-17 at the latest, for Ontario.
- Bill Curry and Carrie Tait: Tories’ $3.7-billion surplus clears a path for promised tax cuts
- Trish McAlaster’s infographic: Ottawa’s forecast for a 2015 surplus
- Adrian Morrow: Ontario's recipe for revenue includes crackdown on tax cheats, black market
Bank of England roils markets
Mark Carney's Bank of England is making waves again.
Mr. Carney defended his forward guidance policy today, boasting that it has already helped Britain's economy even though underlying assumptions have changed, The Globe and Mail's Paul Waldie reports from London.
The central bank has said it won't look at hiking its benchmark interest rate until unemployment eases to at least 7 per cent, which it wasn't expecting until mid-2016.
Today, however, there are suggestions that will come much earlier, possibly by late 2015 or even sooner.
Suggestions of an earlier-than-expected rate hike sent the London market into a tailspin today, raising questions among observers after Mr. Carney also suggested that unemployment could ease earlier based on market interest rates, and the assumption that the central bank's benchmark follows those.
"We've long warned of the perils attached to the Bank of England's conditional promise not to raise its policy rate until [the second half of] 2016," said Derek Holt and Dov Zigler of Bank of Nova Scotia.
"With this morning's actions, the BoE has abandoned prior guidance and now believes that the unemployment rate will hit its 7-per-cent threshold by [the third quarter of] 2015 and therefore confirms market expectations that rate hikes might commence prior to the BoE's earlier guidance of just a few months ago," they added.
"Indeed, the BoE has shifted responsibility for forecasting when the unemployment rate with hit the 7-per-cent target to markets … That appears to be switching the traditional order of the horse and the cart."
Loblaw cuts forecast
Canada's grocery wars are coming home to roost for the country's major chains.
As The Globe and Mail's Bertrand Marotte reports, Loblaw Cos. Ltd. cut its profit projection for 2013 today as its third-quarter profit slipped by 29 per cent.
Among the items hitting the latest quarter were costs related its takeover of Shoppers Drug Mart Corp. and its real estate spinoff.
Loblaw profit fell to $154-million or 55 cents a share in the quarter from $217-million or 77 cents a year earlier. Adjust profit slipped to 78 cents a share from 81 cents. Revenue rose 1.9 per cent to just over $10-billion.
Loblaw, of course, is facing heightened competition, as are other retailers.
Metro Inc., in turn, posted a dip in profit to $83.6-million or 88 cents a share in its fourth quarter, from $145.1-million or $1.46 a year earlier.
- Bertrand Marotte: Loblaw warns on profit for 2013, third-quarter earnings drop 29%
- Marina Strauss: Grocers feeling pressure from retail war with U.S. giants
EC to analyze Germany
The European Commission has launched a study into Germany's current account surplus amid complaints from others in Europe and the United States.
Germany is the powerhouse of the continent, and records strong surpluses, leaving others to complain about the heft of its export might.
"A high surplus does not necessarily mean that there is an imbalance," European Commission chief Jose Manuel Barroso told reporters today, according to Reuters.
"We do need to examine this further and understand whether a high surplus in Germany is something affecting the functioning of the European economy as a whole."
Ontario asks for project study
The Ontario government is throwing up a political challenge to TransCanada Corp.'s plan to convert an existing natural gas pipeline to carry oil from Alberta to eastern Canada, The Globe and Mail's Shawn McCarthy reports.
The Liberal government has asked its energy board to conduct a public review of the proposed $12-billion Energy East project, especially its implications for public safety, greenhouse gas emissions and the reliability of the province's natural gas supply.
Energy Minister Bob Chiarelli said the pipeline project has the potential to benefit the entire country through a better-connected energy network, but that the province has a responsibility to ensure those benefits outweigh the risks.
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