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Sherry Cooper on economy: We're lucky to be Canadians

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The right place at the right time Bank of Montreal's Sherry Cooper gets a little sentimental today, but she's right when she points that we're lucky to be Canadians in this time of global economic upheaval.

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BMO's chief economist looks in a report at what's right with Canada and wrong with other countries, notably the United States and the nations crippled by the euro debt crisis, which she believes is nowhere near over. And she applauds Finance Minister Jim Flaherty for deciding this week to put off plans for a balanced budget in this climate.

"With the rise in the unemployment rate to 7.3 per cent and first-half growth of a more 1.6 per cent, along with increasing global financial uncertainty, there is no need for Canada to mindlessly follow an austerity plan that was developed when the economy was expected to grow at a relatively strong pace," Ms. Cooper says in her report.

"Bank of Canada Governor Mark Carney recognized months ago that Canada's recovery is dampened by the much weaker-than-expected U.S. economy and the enlarging effects of the euro crisis."

While I believe Mr. Flaherty could have done more to bring down the jobless rate, and help our unemployed youth find work, I do agree with Ms. Cooper that he has chosen the right road, one that doesn't include austerity at all costs. And he did scale back plans for a hike in EI premiums while extending Ottawa's work-sharing scheme.

Still, compare Canada to Spain, where unemployment is running at 20 per cent, or Greece, where it's 18 per cent.

Ms. Cooper notes that Canada took its medicine under the Liberals in the 1990s, with fiscal reforms that put the country in such a strong position today.

She also notes that the Bank of Canada "broke the back of inflation" in the early 1990s, and has had strong credibility since then. That's true, but the cost then was far too high, as the central bank hiked interest rates relentlessly and the jobless rate soared to about 12 per cent.

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Still, we're talking about the here and now, and no one can question the credibility of Mr. Carney, who led Canada out of recession and has now been rightly named to head up a global body of bank watchdogs.

Ms. Cooper doesn't believe it will be all smooth sailing - the troubles in the United States and the euro zone do affect Canada, and growth in the country is slowing - and suggests it's prudent for Mr. Flaherty and Mr. Carney to keep an "open-minded and flexible" stance on policy.

"We are lucky to be Canadian," she concludes. "And all the more so because we are in a position to 'keep our powder dry' in the event that further countercyclical stimulus is needed. Unlike most other developed economies, we have some ammo left and the good sense to know when, and if, to use it."

Markets brighter Investors are in more of a buying mood as fears over the euro zone continue to ease somewhat.

"Markets appear to be taking something of a breather so far today after this week's volatility," said David Jones, chief market strategist at IG Index in London. "There is very little on the calendar for traders to focus on today – the Italian government are having a vote on austerity measures but as there is a further vote next week, so the European debt crisis is on hold for today at least."

Tokyo's Nikkei rose 0.2 per cent today, while Hong Kong's Hang Seng climbed 0.9 per cent. Europe's major markets rose sharply, and in North America, the S&P 500 and Toronto's S&P/TSX composite also climbed.

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Markets are watching events in Italy, where the Senate today rushed through austerity measures that would lead to Prime Minister Silvio Berlusconi's resignation and a new government that would likely see Mario Monti, the former EU antitrust chief, at the helm. The measures still have to go to another vote tomorrow.

The fight for Keystone XL UBS Securities Canada believes shippers could live with the proposed Keystone XL pipeline being completed by late 2014. But, analyst Chad Friess said today, there's no assurance that the delayed project won't meet the same troubles.

As The Globe and Mail's Nathan VanderKlippe and Carrie Tait write in today's Report on Business, the U.S. State Department has put the project in jeopardy by delaying a decision and telling TransCanada Corp. to design a new route that would skirt an environmentally sensitive region in Nebraska.

When all's said and done, the process could take until early 2013. The delay puts the decision comfortably beyond the 2012 U.S. elections. TransCanada says it's optimistic the $7-billion pipeline will be built.

"Accordingly, we don't expect the project to be built until at least the end of 2014, assuming sufficient shipper support remains," Mr. Friess said in a research report.

"Shippers will at all costs avoid shutting in their upstream growth," Mr. Friess added. "We believe a late 2014 completion would be a tolerable delay for most shippers but there is no guarantee that a new route won't meet the same resistance as the current one, which has been under review since 2008. Fundamentally we believe Keystone is merely a battleground for the anti-oil sands movement. For context, we estimate that once built, the XL project will represent about 45 cents in annual EPS to [TransCanada]"

Desjardins analyst Pierre Lacroix trimmed his price target on the company's shares to $46 from $47, saying the decision will "likely drag [TransCanada's]shares down over the near term."

Brookfield profit climbs Brookfield Asset Management Inc. today posted a third-quarter profit of more than double the year-earlier period.

Profit attributable to Brookfield climbed in the quarter to $253-million (U.S.) or 36 cents a share from $112-million or 16 cents a year earlier. Net operating cash flow, which the company highlights as its focus, slipped to $$241-million or 35 cents from $354-million or 57 cents.

Japan to join talks Japan is going to join talks on a broader Pacific Rim free trade bloc from which Canada has been excluded.

Prime Minister Yoshihiko Noda aims to take part with others, such as the United States, Australia and Peru, that are already trying to get into the deal.

Canada has been blocked primarily because Ottawa doesn't want to tinker with the supply management regulations in the dairy and poultry industries.

All that glitters ... Gold is being outpaced by two unlikely candidates: Cows and pigs.

"Given all the uncertainty in financial markets, inflation fears, and negative real interest rates, anyone might be forgiven for thinking that gold was the star performer among commodities over the past year," says Kenrick Jordan of BMO Nesbitt Burns. "Well, it turns out that it wasn't. It was eclipsed by some much less lustrous counterparts."

As Mr. Jordan notes, gold has gained a "not-too-shabby" 24 per cent, while hog prices have climbed 29 per cent and cattle prices 25 per cent.

"Robust demand from developing countries and discipline in trimming herds to better match market needs have buoyed livestock prices."

Pork prices have, in a roundabout way, fed into some of the gyrations in the markets over the past several months. They've been a big factor in overall price increases in China, which has waged a battle against inflation that has led to fears of monetary tightening in turn choking demand in the engine of the global recovery.

But China's latest numbers showed the annual inflation rate tumbling in October to 5.5 per cent, from 6.1 per cent in September, driven by a monthly decline of 1.8 per cent in pork prices that, according to Capital Economics, will "probably continue to fall due to a steady increase in the pig population."

For Mr. Jordan's research, see the accompanying infographic or click here.

Tims on a roll Desjardins has boosted its price target on shares of Tim Hortons Inc. after the coffee and doughnut chain's quarterly results yesterday.

Keith Howlett of Desjardins hiked his target to $58 from $47, saying Tims "continues to grow from a market leadership position in Canada, and now has established critical mass and sustained profitability in select regional U.S. markets."

Tims reported yesterday that its profit surged in the third quarter to to $103.6-million or 65 cents a share, diluted, from $73.8-million or 42 cents a year earlier. Revenue climbed to $726.9-million from $670.5-million.

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In Economy Lab As older, easier sources of economic growth are drying up, the prospects for continued dynamism and prosperity hinge more than ever before on pioneering entrepreneurial start-ups to explore and extend the technological barrier, Carl Schramm writes.

In International Business McDonald's is looking to capitalize on the depressed commercial property market and buy more of the land and buildings where it operates, Alan Rappeport of The Financial Times reports.

In Globe Careers Sometimes, in a job, it may be time to move on. There are pros and cons if you leave, and pros and cons if you stay, Eileen Dooley writes.

From today's Report on Business

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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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