CANADA ECONOMICS
VENEZUELA
GLOBAL AFFAIRS CANADA. October 24, 2017. Foreign Affairs Minister to host third ministerial meeting of the Lima Group on the situation in Venezuela
The Honourable Chrystia Freeland, Minister of Foreign Affairs, along with the foreign minister of Peru, Ricardo Luna, as co-chair, will host foreign ministers of the Lima Group to explore ways in which countries of the hemisphere can seek a solution to the Venezuelan crisis.
Itinerary for Foreign Affairs Minister for Thursday, October 26, 2017
Location: Sheraton Centre Hotel, 123 Queen Street West, Toronto, Ontario
8:30 a.m. Working breakfast
Closed to media
9:00 a.m. Opening remarks by Foreign Affairs Minister Chrystia Freeland and Peru’s Foreign Affairs Minister Ricardo Luna at the Lima Group meeting.
Notes for media
- Open coverage at the beginning of the ministerial meeting in the Willow Centre &East Room–mezzanine level;
- For all morning events, media should arrive on the mezzanine level of the hotel no later than 8:30 a.m. to register;
- Media will be asked to present their media credentials upon arrival;
- High-resolution online video feeds will be available for media in English, French and Spanish; Please follow these instructions.
12:30 p.m. Working luncheon
Closed to media
2:30 p.m. Press conference and group photo
Notes for media
- Open coverage in the Willow Centre & East Room–mezzanine level;
- For afternoon events, media should arrive on the mezzanine level of the hotel by no later than 2:00 p.m. to register;
- Media will be asked to present their media credentials upon arrival;
- High-resolution online video feeds will be available for media in English, French and Spanish;Please follow these instructions.
4:45 p.m. The Foreign Affairs Minister will participate in a panel discussion at a conference on Venezuela hosted by the Munk School of Global Affairs and the Canadian Council for the Americas at the University of Toronto.
ECONOMY
Department of Finance Canada. October 25, 2017. Minister Morneau Highlights Support for Families and Plan for Middle Class Progress
Ottawa, Ontario – When you have an economy that works for the middle class and those working hard to join it, you have a country that works for everyone. The investments the Government has made in Canadians and their families, in our communities and in our economy are working. Canada now has the fastest growing economy in the G7 and among the best job growth in a decade, giving our Government the ability to reinvest the benefits of that growth back into the people who contributed most to that success.
Finance Minister Bill Morneau today met with mothers and their children at Youville Centre in Ottawa, a non-profit, registered charity that serves adolescent mothers and their children, to highlight what the Government is doing for Canada's middle class and those working hard to join it. Since coming into office, the Government has focused on transforming Canada's economy by investing in our people and putting more money in the pockets of those who need it most, giving them confidence in our economy and in their future, while creating more opportunities and good, well-paying jobs.
The Fall Economic Statement builds on this progress by proposing to:
- Strengthen the Canada Child Benefit (CCB) by making annual cost of living increases to the CCB starting in July 2018—two years ahead of schedule. For a single mother of two children making $35,000, a strengthened CCB will contribute $560 in the 2019–20 benefit year towards the cost of raising them. That means more money, tax-free, for books, skating lessons or warm clothes for winter. The added confidence the CCB brings to families has proven to have an immediate positive impact on economic growth.
- Put more money in the pockets of low-income workers—including young single workers just getting a foothold in the workforce—by further enhancing the Working Income Tax Benefit by an additional $500 million per year.
- Help small businesses invest, grow and create jobs by lowering the small business tax rate to 10 per cent, effective January 1, 2018, and to 9 per cent, effective January 1, 2019. This will provide a small business with up to $7,500 in federal corporate tax savings per year to reinvest in and grow their business.
- Make important changes to the tax system that will ensure Canada's low corporate tax rates go towards supporting businesses, not to providing unfair tax advantages to the top 1 per cent wealthiest Canadians.
The Fall Economic Statement also provides an update on how investing in the economy and the middle class is delivering real results for Canadians:
- Canada is the fastest growing economy in the G7—by a wide margin—growing at an average rate of 3.7 per cent over the last year, which is the fastest pace of growth since early 2006.
- Job creation is strong, with over 450,000 new jobs created in the last two years, and the unemployment rate at its lowest level since 2008. Youth unemployment is an all-time low.
- Growth is forecast to be 3.1 per cent in 2017—significantly above expectations at the beginning of the year. The fiscal outlook has improved by more than $6.5 billion annually on average from what was projected in Budget 2017 last March.
Quote
"Our economy is growing and we want all Canadians to see it have an impact on their everyday lives. With the 2017 Fall Economic Statement, we are doing even more to help the middle class and those working hard to join it, with lower taxes on small business, more support through the Canada Child Benefit, and an enhanced Working Income Tax Benefit. We know that when we help those Canadians who need it, they strengthen our communities and help our economy grow."
- Bill Morneau, Minister of Finance
Fall Economic Statement: http://www.budget.gc.ca/fes-eea/2017/docs/statement-enonce/fes-eea-2017-eng.pdf
Fall Economic Statement Speech: http://www.fin.gc.ca/news-nouvelles/speeches-discours/2017/2017-10-24-eng.asp
Progress for the Middle Class. Fall Economic Statement—Remarks by the Honourable Bill Morneau, Minister of Finance
Mr. Speaker, middle class Canadians expect their Government and the economy to work for them—not the other way around.
It's why two years ago they asked for real change.
They asked us to invest in them, in their communities and in the economy to create jobs now, and build a better future for our children and grandchildren.
They asked us to protect the air we breathe, and to make sure every child has access to clean drinking water.
They asked us to help their family make ends meet, and to provide equal opportunities for women and men.
Canadians asked us to invest in their future and to put more money in their pockets, to give them a little more breathing room at the end of the month.
When I was door knocking in my riding of Toronto Centre before being elected, one of my volunteers—a little girl—handed me a note.
On it was a list of her family members—all of whom needed to find permanent housing: a safe place to call home.
This little girl had been helping me all day, and was now placing her faith in me, and asking me to help her and her family.
She, like millions of other Canadians, asked us to keep our focus on them, so that they have the tools and resources they need to succeed.
And when Canadians succeed, they grow our economy. They create jobs. And together we build a better future.
And so we came to office with a plan to help those working to be successful, not just those who already are.
We came to office knowing that growing the middle class is how we grow the economy.
Today, Mr. Speaker, we're doubling down on that strategy—because it's working.
In just two years, over 450,000 jobs have been created, and youth unemployment is the lowest on record.
Economic growth has spiked from just 0.9 per cent to the highest we've seen in over a decade.
The Canadian economy is performing well; in fact, jobs are being created at the fastest pace in over a decade.
In just two years, we've lifted 26 long-term boil-water advisories on reserve.
Over 350,000 more students get help each year to afford books, tuition and earn their degree.
We've effectively doubled the Canada Summer Jobs program, helping 65,000 students find work in the summer months.
We've given 9 million Canadians a tax cut.
With the Canada Child Benefit (CCB), we're lifting 300,000 children out of poverty, and we've put more money in the pockets of 9 out of 10 families.
These families contribute to their community and the Canadian economy, by in turn investing in their family through new skates, piano lessons or through healthier food.
In just two years we've secured better retirements for Canadian workers today and for future generations with a stronger Canada Pension Plan.
And for that little girl and her family in Toronto and 1.6 million other families across the country, we've invested in the National Housing Strategy to help make sure they have a safe and affordable place to live.
We've put more money in the pockets of 900,000 seniors living on a fixed income with increases in the Guaranteed Income Supplement, allowing them more freedom, and less worry.
What it boils down to, Mr. Speaker, is that in just two years we've built up confidence in our economy and in our middle class.
We know that when we make these investments in Canadians, they grow our economy.
That's the fundamental difference, Mr. Speaker, between our plan, and what happened in the previous decade.
And in just two years, we are seeing results.
Thanks to the hard work of Canadians, our country leads the G7 in growth this year, and is positioned to lead it again next year.
As our economy grows, the bottom line improves—in this Fall Economic Statement Canada's fiscal outlook has improved by over $8.5 billion per year compared to what we were expecting in March.
In fact, Canada's net debt-to-GDP (gross domestic product) ratio—the size of our debt, relative to the economy—will continue to decline.
Mr. Speaker, not only is our plan working, it's working better than expected.
Our strong fiscal position allows us to do what other countries would like to do, but can't afford to do.
We're investing in ourselves and in our future.
It allows us to take full advantage of the kind of strong economic performance we're seeing now by reinvesting in the middle class, while maintaining the flexibility needed to manage global uncertainty.
But Mr. Speaker, as Members on this side of the House know, a thriving economy and a solid bottom line are only half the answer.
As the economy grows we need to make sure the benefits are shared with the middle class, and those working hard to join it.
And as we invest directly in Canadians and their families, we have an immediate impact on the economy.
On July 20, 2016, nine out of 10 Canadian families began receiving more money, tax-free, from the Canada Child Benefit.
When families like mine stopped receiving benefit cheques, our Government was able to put more money directly into the pockets of the moms and dads who needed it most.
Right away, they—in turn—invested in their families.
They paid off debts, sent the kids to summer camp, bought healthier food, and maybe a few more children's books.
Right away, we saw a spike in consumer confidence, and a rise in household spending that underpins our economic growth to this day.
It's no wonder the International Monetary Fund's Christine Lagarde hopes our approach will "go viral".
So now, with a little more wind in our sails, we're doubling down on a plan with proven results and reinvesting in the middle class.
Our Government will strengthen the Canada Child Benefit, by making sure it keeps pace with the cost of living.
Starting next July—two years ahead of schedule—tax-free CCB amounts for families with two children will go up by approximately $200. The year after that, families can count on $500 more.
And for those working hard to join the middle class—many of whom are living alone—we will offer even more help, with an increase to the Working Income Tax Benefit.
This increase will give a needed boost to over one and a half million low-income workers, by allowing them to keep more of their pay as they work long hours, sometimes in more than one job, to advance their careers and support themselves and their families.
For young single workers just getting a foothold, shouldering the rising cost of living alone can be a crushing responsibility.
For someone living alone—now the most common type of household in Canada, according to the latest census—this could mean not having to make the choice between paying the rent or buying groceries this week.
For a single mom, a stronger CCB and a more generous Working Income Tax Benefit means more peace of mind when the bills come due.
Finally, Mr. Speaker, we are investing directly in Canada's small businesses by proposing to lower the small business tax rate from 11 per cent in 2015 to 9 per cent in 2019.
I greatly appreciate the frank discussions I've had with Canadian entrepreneurs over the past few weeks.
If the last few months have taught me anything, it's the strength and resilience of entrepreneurs and small business owners.
It's been humbling, and inspiring, to meet with so many passionate business owners from coast to coast over the past few weeks.
I called a woman in St. John's who was concerned about the changes. She had told the Premier about it, who told me.
So I picked up the phone the very next day.
Our caucus heard from a town hall in Kelowna, including personal stories from young woman physicians who needed added flexibility.
Just last week I met with John, Lori and their son Angus in Erinsville.
Angus wants to take over the farm someday—he'll be the seventh generation to have that honour.
I met Brittany and Rebecca in a cafe in Hampton, New Brunswick.
We sat with the Rampulla family in their restaurant in Markham.
I told Cathy and Joey I'd be back.
These are the people who drive me to do better, and to get things right.
Through you, Mr. Speaker, I say to them: I heard you. We hear you.
We held a consultation to fix a tax system that's not working the way it was intended.
Before we could lower taxes for small businesses, I had to be sure this investment would be going to help the Cerrelli family in Montréal design and build their dream kitchens, rather than giving tax advantages to the wealthiest.
As the Prime Minister said last week, "Canada is a country where we celebrate our collective contributions rather than protect the interests of a privileged few."
It's in that spirit that we are moving forward to fix a system that currently allows someone making hundreds of thousands of dollars a year to pay a lower tax rate than someone making far less, just because they are incorporated and have children over 18.
For incorporated professionals and business owners, we will preserve the flexibility to save up for a rainy day, for parental leave, or for retirement—while not allowing individuals to have unlimited tax-advantaged savings accounts over and above what is available to everyone else.
And we will work with farmers, fishers and business owners to make sure they can pass down the family business to the next generation.
Our approach is to give all Canadians a real chance at success.
In everything we do, our Government knows that when Canadians are given a real and fair chance at success they will make the most of it.
That's how you grow an economy, sustainably.
That's how you manage finances, responsibly.
As we continue with our plan, we will do what is hard.
We will do what is right. Our ultimate goal is nothing short of an economy that rewards the very people who contribute to its success.
As we look to Budget 2018 we will continue our work to build on the gains we have made over the last two years, always with the middle class and those working hard to join it as our focus.
We will make sure Canadians have the skills, training and learning opportunities they need to compete and thrive in the rapidly changing global economy.
We will drive forward our Innovation and Skills Plan, making big bets on the most competitive sectors of our economy, making Canada a world leader in industries like agri-food, clean tech and digital.
We will continue investments in our transit, our roads and in clean water—to keep our cities moving, and our children safe.
And always, Mr. Speaker, we will invest in Canadians, and give them the tools, skills and resources to create jobs and grow the economy.
Mr. Speaker, in just two years we've done a lot together.
And there is much more to do.
Working together, we will make sure Canadians have every opportunity to succeed, and to build their future and a country we can all be proud of.
Thank you, Mr. Speaker.
Backgrounder: Strengthening the Canada Child Benefit: http://www.fin.gc.ca/n17/data/17-103_1-eng.asp
Backgrounder: Strengthening the Canada Child Benefit
Introduced in 2016, the Canada Child Benefit (CCB) is a key initiative of the Government to strengthen the middle class and help those working to join it. Nine out of 10 families get more than they did under the previous benefit system. Families who need it most get more money in their pocket to help them with the cost of raising children under 18 years of age.
Whether the extra money is used for things such as after-school care, tutoring, or a new pair of skates, the CCB helps parents with the high costs of raising their kids. The CCB is:
- simple — families receive a single payment every month
- tax-free — families do not have to pay back part of the amount received when they file their tax returns
- targeted to those who need it most — low- and middle-income families get higher payments, and those with the highest incomes receive less than under the previous system of child benefits generous — on average, families benefitting from the CCB receive about $6,800 in CCB payments annually.
The CCB provides greater support to those who need it most: low- and middle-income families. About 65 per cent of families receiving the maximum CCB amounts are single parents, of whom 90 per cent are single mothers.
In the 2016–17 benefit year, over 3.3 million families received more than $23 billion in CCB payments, and the nine out of 10 families who are better off as a result of the CCB received on average almost $2,300 more in benefits, tax-free. The CCB has helped lift about 300,000 children out of poverty. Thanks to the CCB, by the end of this year, it is estimated that child poverty will have been reduced by 40 per cent from what it was in 2013.
The CCB is a major plank of the Government's plan to give Canadians the tools, skills and resources they need to be successful. The CCB has helped millions of families pay down debt, save for post-secondary education and buy daily necessities for their kids. This has led to increased consumer confidence and household spending, which is now helping Canada lead the G7 in economic growth, and significantly improving the Government's fiscal outlook. With this added flexibility, the Government is now able to reinvest directly into the middle class, and those working hard to join it.
In this Fall Economic Statement, the Government proposes to strengthen the CCB by increasing the benefits annually to keep pace with the rising cost of living as of July 2018. In the fall of 2016, the Government committed to index the CCB to inflation starting July 2020, but a growing economy and improved fiscal track means the Government can deliver on this commitment two years sooner.
Indexing the CCB sooner will ensure that it will continue to play a vital role in supporting Canadian families and reducing child poverty.
| CCB amounts and phase-out thresholds ($) | Current Benefit Year | 2018–19 | 2019–20 (projected) |
|---|---|---|---|
| Maximum amount per child under 6 | 6,400 | 6,496 | 6,626 |
| Maximum amount per child aged 6 through 17 | 5,400 | 5,481 | 5,591 |
| First income threshold | 30,000 | 30,450 | 31,059 |
| Second income threshold | 65,000 | 65,975 | 67,295 |
| Source: Department of Finance. Indexation: 1.5% for 2018 and 2.0% (projected) for 2019. | |||
Indexing the CCB for the 2018–19 benefit year will provide an additional $5.6 billion in support to Canadian families over the 2018–19 to 2022–23 period.
Department of Finance Canada. October 24, 2017. Doubling Down on Progress for the Middle Class
Ottawa, Ontario – When you have an economy that works for the middle class, you have a country that works for everyone. The investments the Government of Canada has made in people, in our communities and in our economy are working. Canada now has the fastest-growing economy in the G7 and among the strongest job growth in a decade, giving our Government the ability to reinvest the benefits of that growth back into the people who contributed most to that success.
With the Fall Economic Statement, the Government will:
- Strengthen the Canada Child Benefit (CCB) by making annual cost of living increases starting in July 2018—two years ahead of schedule. For a single parent of two children making $35,000, a strengthened CCB will contribute $560 in the 2019–20 benefit year towards the cost of raising his or her children. That means more money, tax-free, for books, skating lessons or warm clothes for winter. The added confidence the CCB brings to families has been shown to have an immediate impact on economic growth.
- Put more money in the pockets of low-income workers—including families without children and the growing number of single Canadians—by further enhancing the Working Income Tax Benefit (WITB) by an additional $500 million per year, starting in 2019. This enhancement will be in addition to the increase of about $250 million annually that will come into effect in that year as part of the enhancement of the Canada Pension Plan. These two actions will boost the total amount the Government spends on the WITB by about 65 per cent in 2019, increasing benefits to current recipients and expanding the number of Canadians receiving support.
- Help small businesses invest, grow and create jobs by lowering the small business tax rate to 10 per cent, effective January 1, 2018, and to 9 per cent, effective January 1, 2019. This will provide a small business with up to $7,500 in federal corporate tax savings per year to reinvest in and grow their business.
- Make important changes to the tax system that will ensure Canada's low corporate tax rates go towards supporting businesses, not to providing unfair tax advantages to the top 1 per cent wealthiest Canadians.
Finance Minister Bill Morneau today tabled a Notice of Ways and Means Motion in the House of Commons that proposes legislative changes to strengthen the CCB and lower the small business tax rate.
Today's Fall Economic Statement also provides an update on how investing in the economy and the middle class is delivering real results for Canadians:
- Canada is the fastest-growing economy in the G7—by a wide margin—growing at an average rate of 3.7 per cent over the last year, which is the fastest pace of growth since early 2006.
- Job creation is strong, with over 450,000 new jobs created in the last two years, and the unemployment rate at its lowest level since 2008. Youth unemployment is at an historic low.
- Growth is forecast to be 3.1 per cent in 2017—significantly above expectations at the beginning of the year. The fiscal outlook has improved by more than $6.5 billion annually on average from what was projected in Budget 2017 last March.
The Government's plan works to strengthen the middle class and to ensure Canadians have the support, resources and confidence they need to succeed, create jobs and grow our economy. Canada's growing economy means a better bottom line for the Government. Canada's fiscal position remains strong, and the Government will keep Canada's debt-to-GDP (gross domestic product) ratio on a downward track—preserving Canada's sound fiscal position so that we can continue to invest in the people who contribute to our success.
Quote
"Our plan to invest in our people and in our communities is working. Canada's economy is growing faster than it has in a decade, allowing us to do even more to help the middle class and those working hard to join it. With lower taxes on small business, more support for parents, and more money in the pockets of low-income workers, we are working to grow the economy in a way that benefits all Canadians. And that is exactly what Canadians sent us here to do."
- Bill Morneau, Minister of Finance
DOCUMENT: http://www.fin.gc.ca/n17/17-103-eng.asp
Employment and Social Development Canada. October 25, 2017. Government of Canada Strengthens Canada Child Benefit
Toronto, Ontario - When you have an economy that works for the middle class, you have a country that works for everyone. The investments the Government has made in people, in our communities and in our economy are working. Canada has the fastest growing economy in the G7—and we are reinvesting the benefits of that growth back into the people who contribute most to that success.
Today in Toronto, Minister Jean-Yves Duclos highlighted how the Government intends to strengthen the Canada Child Benefit (CCB) by making annual cost of living increases starting in July 2018—two years ahead of schedule. For a single parent of two children making $35,000, a strengthened CCB will contribute $560 in the 2019–20 benefit year towards the cost of raising his or her children. That means more money, tax-free, for books, skating lessons or warm clothes for winter. The added confidence the CCB brings to families has been shown to have an immediate impact on economic growth.
Yesterday’s Fall Economic Statement provides an update on how the Government’s investments in the economy and the middle class are delivering real results for Canadians:
- Canada is the fastest growing economy in the G7—by a wide margin—growing at an average rate of 3.7 per cent over the last year, which is the fastest pace of growth since early 2006.
- Job creation is strong, with over 450,000 new jobs created in the last two years, and the unemployment rate at its lowest level since 2008.
- Growth is forecast to be 3.1 per cent in 2017—significantly above expectations at the beginning of the year.
As our plan works to strengthen the economy, the Government will continue to make smart, targeted investments in an innovative, inclusive and sustainable economy that works for the middle class. With Canada’s economy growing faster than it has in over a decade, the Government is reinvesting in Canada’s middle class by cutting taxes for small business, and providing more money to families through the CCB, while helping low-income Canadians by bolstering the Working Income Tax Benefit. By working together, we will make sure Canadians have every opportunity to succeed, and to build their future and a country we can all be proud of.
Quotes
“The tax-free Canada Child Benefit provides a welcome boost for Canadian parents. Whether the extra money is used for things such as signing up their children for summer camp, helping cover the family grocery bill, or buying warm coats for the winter, the CCB helps parents with the high costs of raising their kids. The investments made in people, in our communities and in our economy have put more money in the pockets of those who need it most, are creating more well-paying jobs and are giving Canadians greater confidence in their future.”
- Jean-Yves Duclos, Minister for Families, Children and Social Development
Quick Facts
- The CCB currently provides a maximum annual benefit of up to $6,400 per child under the age of 6 and up to $5,400 per child for those aged 6 through 17.
- About 65 per cent of families receiving the maximum CCB amounts are single parents, of whom 90 per cent are single mothers.
- During the first benefit year, over 3.3 million families received more than $23 billion in CCB payments, and those better off under the CCB saw an average of almost $2,300 more in benefits, tax-free.
- The CCB has helped lift 300,000 children out of poverty and, by the end of this year, child poverty will have been reduced by 40 per cent from what it was in 2013.
DOCUMENTS: https://www.canada.ca/en/employment-social-development/news/2017/10/government_of_canadastrengthenscanadachildbenefit.html
MONETARY POLICY
BANK OF CANADA. October 25, 2017. Monetary Policy Report – October 2017
Projections for Canadian economic growth have been increased to 3.1 per cent this year and 2.1 per cent in 2018, with growth of 1.5 per cent forecast for 2019.
FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/10/mpr-2017-10-25.pdf
BANK OF CANADA. October 25, 2017. Bank of Canada maintains overnight rate target at 1 per cent
Ottawa, Ontario - The Bank of Canada today maintained its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
Inflation has picked up in recent months, as anticipated in the Bank’s July Monetary Policy Report (MPR), reflecting stronger economic activity and higher gasoline prices. Measures of core inflation have edged up, in line with a narrowing output gap and the diminishing effects of lower food prices. The Bank projects inflation will rise to 2 per cent in the second half of 2018. This is a little later than anticipated in July because of the recent strength in the Canadian dollar. The Bank is also mindful that global structural factors could be weighing on inflation in Canada and other advanced economies.
The global and Canadian economies are progressing as outlined in the July MPR. Economic activity continues to strengthen and broaden across countries. The Bank still expects global growth to average around 3 1/2 per cent over 2017-19. However, this outlook remains subject to substantial uncertainty about geopolitical developments and fiscal and trade policies, notably the renegotiation of the North American Free Trade Agreement.
Canada’s economic growth in the second quarter was stronger than expected, and was more broad-based across regions and sectors. Growth is expected to moderate to a more sustainable pace in the second half of 2017 and remain close to potential over the next two years, with real GDP expanding at 3.1 per cent in 2017, 2.1 per cent in 2018 and 1.5 per cent in 2019. Exports and business investment are both expected to continue to make a solid contribution to GDP growth. However, projected export growth is slightly slower than before, in part because of a stronger Canadian dollar than assumed in July. Housing and consumption are forecast to slow in light of policy changes affecting housing markets and higher interest rates. Because of high debt levels, household spending is likely more sensitive to interest rates than in the past.
The Bank estimates that the economy is operating close to its potential. However, wage and other data indicate that there is still slack in the labour market. This suggests that there could be room for more economic growth than the Bank is projecting without inflation rising materially above target.
Based on this outlook and the risks and uncertainties identified in today’s MPR, Governing Council judges that the current stance of monetary policy is appropriate. While less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate. In particular, the Bank will be guided by incoming data to assess the sensitivity of the economy to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.
Information note
The next scheduled date for announcing the overnight rate target is December 6, 2017. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on January 17, 2018.
FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/10/fad-press-release-2017-10-25.pdf
BANK OF CANADA. October 25, 2017. Monetary Policy Report Press Conference Opening Statement. Opening Statement. Stephen S. Poloz - Governor. Carolyn A. Wilkins - Senior Deputy Governor
Ottawa, Ontario - Good morning. Senior Deputy Governor Wilkins and I are pleased to be here to answer your questions about today’s interest rate announcement and our Monetary Policy Report (MPR).
As you know, Governing Council decided to raise interest rates at each of its July and September meetings, in the context of stronger-than-expected economic growth and a very strong labour market. Furthermore, over the course of the summer, we saw a firming of inflation indicators and a rapidly closing output gap. As we predicted in July, the economy is showing signs of moderating in the second half of the year. Nevertheless, we expect the economy to continue to grow at an above-potential pace.
Today, we left our policy rate unchanged at 1 per cent. We regard this level as appropriate in light of our updated projection for the economy and inflation—in particular, we expect inflation to reach our 2 per cent target in the second half of 2018. This is a little later than we projected in July, primarily because the Canadian dollar has strengthened in 2017.
Before taking your questions, let me offer a few comments around Governing Council’s deliberations.
Governing Council agreed that the economy is likely to require less monetary stimulus over time, but we will be cautious in making future adjustments to our policy rate. Four key issues are adding uncertainty to the projection. These are the same four issues that I highlighted in my recent speech in St. John’s, and they played an important role in our deliberations for today’s decision. Discussion of these issues features strongly in today’s MPR.
The first issue on which Governing Council spent considerable time is around inflation itself. In this MPR, we investigate a number of conjectures around the apparent softness of inflation in several advanced economies. I refer you to Box 1 of the MPR. These conjectures include a role for technology, specifically digitalization, which may be putting downward pressure on inflation; a role for imported disinflation from lower-cost countries; or more generally, a role for the forces of globalization. Suffice to say that for the Canadian data, this work has generally confirmed our faith in our model of inflation, in which inflation depends mainly on the degree of excess demand or excess supply in the economy, and this process operates with a lag. In short, we believe that we understand how Canada’s inflation rate has been evolving. If we have been surprised in the past, it has been either because of sector-specific shocks, or because economic growth was slower than expected and there was more excess capacity than we previously believed.
Indeed, the second issue that preoccupied Governing Council was the degree of excess capacity in the economy. The economic growth we experienced in the first half of the year has been sufficient to bring the level of production close to our estimates of capacity. Let me reiterate, inflation has always been and remains a question of supply and demand. Therefore, one might expect continued above-potential economic growth—which we are forecasting for the next few quarters—to cause inflation to rise over time. However, the economy builds new capacity every day, through new companies and through investment and increased employment. We note that there is still some excess capacity in the labour market: there are people who are working part time who would prefer full-time work, there is still below-trend participation in work by youth, and hours worked are lower than we would expect. Accordingly, what we expect to see—and what occurs at this stage of virtually every economic cycle—is capacity-augmenting investment and the creation of new jobs at existing firms or at new firms, along with rising productivity. All of this could mean higher potential output than we have built into our projection. Because this process is highly uncertain as to timing and size, we build it into our projection conservatively. But the bottom line is that the economy could be capable of generating more non-inflationary growth than we are assuming.
The third issue is the continued softness in wage growth in the context of an unemployment rate that is now about the same as it was prior to the global financial crisis. While employment growth has certainly been strong, wage increases have not kept pace. This softness is due in part to the excess capacity in the labour market that I just mentioned, and the link between excess demand and higher wages also operates with a lag. But it is also possible that other factors, including globalization, may be affecting wage dynamics.
The fourth issue that preoccupied Governing Council was elevated household debt and how that might affect the economy’s response to higher interest rates. We have enhanced our main macroeconomic model used for projections to capture relevant details around housing and debt, and we have re-estimated all of our model’s parameters using advanced methods. You can find details in the appendix in the MPR. We do find that the economy is likely to respond more to higher interest rates at today’s debt levels than historically. Even so, we have to allow for the possibility that these improved estimates fall short of the mark. Furthermore, we have to watch how the household sector reacts to the new rules around mortgage underwriting. It will take time to understand the impact of these changes as well as the economy’s sensitivity to higher interest rates.
Governing Council expects that incoming data and new research will shed more light on these four issues as we move forward. There is also a range of other risks that we outline in the MPR, which, taken together, give us a balanced outlook for inflation. As well, there is uncertainty surrounding the possibility of a significant shift toward more-protectionist trade policies in the United States, which we have chosen not to incorporate in our projection.
Given our recent history with inflation running below target, we continue to be more preoccupied with the downside risks to inflation. The bottom line is that Governing Council will be cautious in considering future interest rate adjustments and will be guided by incoming data to assess the sensitivity of the economy to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.
With that, Senior Deputy Governor Wilkins and I will be happy to take your questions.
FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/10/opening-statement-251017.pdf
THE GLOBE AND MAIL. OCTOBER 25, 2017. Canadian dollar slumps fast on Bank of Canada rate signal, sinks toward 78¢
MICHAEL BABAD, Columnist
Loonie slumps after Bank of Canada
The Canadian dollar is slumping fast after the Bank of Canada held the line and signalled a slow pace of interest rate increases.
The loonie took a mighty tumble after the central bank held its benchmark rate steady at 1 per cent and pointed toward a slower pace of economic growth in the second half of the year.
As The Globe and Mail's Barrie McKenna reports, the central bank said "less monetary stimulus will likely be required over time" and that governor Stephen Poloz and his colleagues would "be cautious in making future adjustments to the policy rate.
Having traded as high as almost 79 cents earlier in the day, the currency slumped to 78.2 cents after the central bank's report.
"A dovish statement from the BoC this morning underlines the biggest risk to CAD at the moment - that the market is far too optimistic," said Bipan Rai, executive director of macro strategy at CIBC World Markets, referring to the Canadian dollar by its symbol.
"That's evident from the amount of net longs in the futures market and the sentiment expressed in the options market," he added.
"There's definitely room for the CAD to weaken here with USD/CAD heading toward the 1.28-to-1.30 area."
What he meant by that is a loonie versus the U.S. dollar at between about 77 cents and 78 cents.
"We are now projecting the BoC to next raise rates in April," Mr. Rai said.
Some analysts had been wondering whether today's decision and monetary policy report would point toward a rate hike in December, but that now appears off the table at this point.
The Bank of Canada is still optimistic about the economy, but is still concerned over negotiations for a revamped North American free-trade agreement.
Those talks have soured, and President Donald Trump has threatened to rip it off.
"This less aggressive stance on interest rates partly reflects concerns over NAFTA renegotiations and, to a lesser extent, the stronger Canadian dollar," said David Madani, senior Canadian economist at Capital Economics.
THE GLOBE AND MAIL. OCTOBER 25, 2017. ECONOMY. Threat of NAFTA collapse, weak inflation put Bank of Canada on hold
BARRIE MCKENNA, OTTAWA
Canada's central bank is hitting the pause button on hiking interest rates in the face of surprisingly weak inflation and the threat of NAFTA's demise.
The Bank of Canada kept its key overnight rate unchanged at 1 per cent Wednesday and appeared to push further down the road any future rate hikes.
The bank says that while the economy is now running close to capacity, inflation won't get back to its two per cent target until the second half of next year because of the recent strength of the Canadian dollar.
The Canadian dollar sank immediately after the announcement, touching its lowest level against its U.S. counterpart since July. By midday, the loonie was trading at 78.17 cents (U.S.). It had been trading at 78.80 cents ahead of the rate decision.
"While less monetary stimulus will likely be required over time, [The Bank of Canada] will be cautious in making future adjustments to the policy rate," the bank said in a statement accompanying its rate decision.
The bank had previously suggested inflation would get back to 2 per cent in mid-2018.
The guarded tone of the statement suggests the Bank of Canada could delay its next move, which many economists had expected would come in December or January. The bank has already raised its key rate twice this year, from 0.5 per cent to 1 per cent.
"This reinforces our view that rates aren't likely to go any higher in the near term," economist David Madani of Capital Economics said in a research note.
The Bank of Montreal said it now expects the central bank's next rate increase to come in March, rather than January, and that it will hike just three times in 2018, instead of four.
"We now believe that the bank will pause for longer, given the greater uncertainty over NAFTA, as well as the recent steps taken by [regulators] to cool the housing market," BMO chief economist Douglas Porter said.
The bank pointed out that it will be closely watching several key pieces of incoming data, including wage growth and the response of consumers and businesses to recent rate hikes.
Meanwhile, the bank is ratcheting up its concern about the Trump effect on Canada's export-dependent economy. Rising protectionism in the U.S. is now "the greatest source of uncertainty" clouding Canada's economic outlook, the bank warns in its latest monetary policy report, also released Wednesday.
But the bank said it has chosen not to fully quantify the potential damage to Canada's economy and export prospects until it has more clarity about what will happen.
The bank cited both the uncertainty over NAFTA and "targeted discretionary" protectionist measures, such as the massive tariffs imposed recently on Bombardier Inc.'s new C Series commercial jets.
The NAFTA negotiations hit a major roadblock last week after the U.S. put tough demands on the table last week, including a minimum U.S. content threshold for manufactured goods, an end to the deal's dispute settlement regime and a phase out of Canada's protected dairy and poultry markets.
The bank said that while Canada's economy has been gaining strength this year, U.S. protectionism had cast a pall on the outlook.
"This outlook remains subject to substantial uncertainty about geopolitical developments and fiscal and trade policies, notably the renegotiation of the North American free trade agreement," the bank said.
Nonetheless, the Bank of Canada raised its forecast for growth this year to 3.1 per cent, or roughly in line with many private-sector forecasters. That's up from its July forecast of 2.8 per cent. Its GDP forecast for 2018 and 2019 remain largely unchanged, at 2.1 per cent (versus 2 per cent) and 1.5 per cent (versus 1.6 per cent) respectively.
The improvement in 2017 is largely due to a blistering first half, in which annual growth averaged 4 per cent.
The bank said it expects growth to "moderate to a more sustainable pace" in the second half – with annual GDP growth of 1.8 per cent in the third quarter and 2.5 per cent in the fourth quarter – due to weaker consumer spending and housing activity.
The bank blamed the pull-back on higher interest rates, tighter mortgage rules and measures in Ontario aimed at stemming the influx of foreign speculators in the housing market. Exports and business will continue to make a "solid contribution" to growth, the bank said.
The bank has also adjusted its main forecasting model because it now believes that record-high debt levels of Canadians have made "household spending more sensitive to interest rates than in the past."
Another growing concern for the central bank is the "unexplained softness" of Canadian inflation. The bank pointed out that while the unemployment rate has continued to fall, other labour market indicators are still lagging, including wage growth and average hours-worked, both of which remain below historical averages.
The bank released two research reports Wednesday, exploring the inflation puzzle, in Canada and globally.
REUTERS. OCTOBER 25, 2017. Bank of Canada holds rates steady, pledges caution
Andrea Hopkins, Leah Schnurr
OTTAWA (Reuters) - The Bank of Canada held interest rates steady on Wednesday, as expected, saying that while less stimulus will be required over time the bank will be cautious as it considers future moves given the risks and uncertainties facing the economy.
In a dovish statement that emphasized “substantial uncertainty” about the renegotiation of the North American Free Trade Agreement, the central bank said the economy is operating close to its potential but slack remains in the labor market.
The cautious tone after back-to-back rate hikes in July and September sent the Canadian dollar tumbling lower, and bets on a December rate increase slipped to less than 30 percent from 37 percent before the rate announcement. BOCWATCH
The Canadian dollar slumped more than one cent, hitting its weakest since Aug. 15 at C$1.2775, or 78.28 U.S. cents.
“We were thinking January (for the next hike), but that’s at risk now, we could push it out further into 2018,” said Sal Guatieri, senior economist at BMO Capital Markets.
The central bank noted the recent appreciation of the Canadian dollar twice in its policy statement, saying inflation will rise to 2 percent a bit later in 2018 than previously expected and export growth will be slightly slower because of the stronger currency.
“While less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate,” the bank said in a statement.
In its quarterly Monetary Policy Report, the central bank said economic activity is forecast to remain close to full capacity and “at times modestly above” depending on how the supply side of the economy evolves.
The bank highlighted the risk that U.S. trade protectionism could drive firms to boost offshore production, hurting exports and business investment.
“This less aggressive stance on interest rates partly reflects concerns over NAFTA renegotiations and, to a lesser extent, the stronger Canadian dollar,” David Madani, senior economist at Capital Economics, said in a research note, adding that he does not expect another rate hike this year.
The bank said recent mortgage rule tightening would dampen housing activity, and warned that a drop in house prices in Toronto or Vancouver could douse residential investment and consumption in those areas and have “modest direct spillovers” to the rest of Canada.
Reporting by Andrea Hopkins; Editing by Susan Thomas and Meredith Mazzilli
BLOOMBERG. 25 October 2017. Bank of Canada Holds Rate Steady, Urges Caution: Key Takeaways
By Theophilos Argitis
- Benchmark rate remains at 1% after two consecutive hikes
- Policy makers flag rising loonie, Nafta talks as concerns
The Bank of Canada kept interest rates on hold, warning it would remain “cautious” when considering future hikes as it gauges the economic impact of gains in the Canadian dollar and higher rates while flagging the risk of growing protectionism in the U.S.
Policy makers led by Governor Stephen Poloz left the benchmark overnight rate at 1 percent Wednesday, pausing after consecutive hikes at the bank’s last two decisions in July and September even as they acknowledged rates are likely to go up.
The central bank cited a laundry list of concerns and questions including a stronger Canadian dollar that is weighing on inflation and exports, the growing risks associated with renegotiation of the North American Free Trade Agreement and evidence of continued slack in the labor market despite recent strong economic growth.
“While less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate,” policy makers said. “The Bank will be guided by incoming data to assess the sensitivity of the economy to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.”
Currency Concerns
Spooked by a jump in the Canadian dollar, the Bank of Canada may be trying to curb expectations for accelerated rate increases following a growth surge over the past year that has eliminated the bulk, if not all, of the economy’s excess capacity.
The Canadian dollar, which dropped 0.7 percent after the statement, is still the best performing since early May, gaining 9 percent over that time. It has pared some of those gains in recent weeks as policy makers including Poloz began to highlight concerns about the appreciation.
“Today’s statement is clearly a move to a more dovish stance by Bank of Canada, and we find strong support to keep our forecast for a next move higher in rate to come only by the spring of 2018,” Nick Exarhos, an economist at CIBC Economics, said in a note to investors.
Key Takeaways
- The gain in the currency loomed large in the rate statement and quarterly Monetary Policy Report. The higher loonie will delay a return to 2 percent inflation to the second half of 2018 (from the middle of 2018 in the July MPR) while curbing projected export growth, the central bank said.
- The Bank of Canada doesn’t want to definitively assert the output gap is fully closed. The MPR projects the output gap is zero in the third quarter, but the statement cites an economy that is operating “close” to its potential and highlights plenty of slack in the labor market. The central bank is also assessing whether the economy may have more potential than assumed. “This suggests that there could be room for more economic growth than the Bank is projecting without inflation rising materially above target.”
Other Details
- The Bank of Canada assumed that households are more sensitive to higher interest rates, citing recent changes it is making to its modeling to take this factor into account. It said housing and consumption are slowing because of both regulatory changes and higher interest rates.
- The central bank cited a “notable shift” toward protectionism as the most important source of risk, specifically Nafta renegotiation. Policy makers have already begun to incorporate uncertainty about trade into their growth forecast, assuming it will lower investment growth by about 0.7 percentage points and export growth by about 0.2 percentage points in 2017 and 2018.
- The Bank of Canada said it is “mindful” that structural factors could be weighing on inflation
- Gross domestic product growth is forecast at 3.1% in 2017, 2.1% in 2018 and 1.5% in 2019, from 2.8%, 2% and 1.6% in the July MPR. Potential output growth meanwhile was raised to 1.5% for 2018-19.
- “As such, economic activity is forecast to remain close to full capacity and at times possibly modestly above, depending on how the supply side of the economy evolves.”
- Growth is expected to slow to 1.8% in the third quarter this year as exports “temporarily decline”, before picking up to 2.5% in the fourth quarter supported by a pick-up in business investment buoyed by the launch of some large projects.
- The decline in the unemployment rate “likely overstates the degree of improvement in the labor market.” The labor market isn’t yet “a source of inflationary pressures and that opportunities for further expansion of employment remain.”
- Pass-through effects of the stronger Canadian dollar are expected to peak at 0.5 percentage points in the second quarter of 2018.
- Tighter mortgage underwriting rules recently announced by Canada’s banking regulator will subtract about 0.2 percent from the level of GDP by the end of 2019.
— With assistance by Greg Quinn, Erik Hertzberg, and Luke Kawa
BLOOMBERG. 25 October 2017. Nafta Uncertainty Already Hurting Growth, Bank of Canada Says
By Luke Kawa
- Central bank flags U.S. protectionism as key risk to outlook
- Firms may choose to invest overseas rather than domestically
Renegotiation of the North American Free Trade Agreement is already taking a big toll on the Canadian economy, according to the nation’s central bank.
Uncertainty about U.S. trade policy will reduce investment growth by 0.7 percentage points and export growth by 0.2 percentage points in both 2017 and 2018, according to projections in the Bank of Canada’s quarterly Monetary Policy Report, released Tuesday in Ottawa.
Policy makers led by Governor Stephen Poloz judged that “increasing uncertainty about the status of current and future trade agreements” was the chief risk to their outlook for the Canadian economy.
“A protectionist shift in the United States is already evident in several discretionary decisions,” the central bank said, highlighting duties imposed by the Commerce Department on Bombardier Inc.’s marquee C-Series jet. “Although the Bank’s projection for exports is cautious, there is a risk that exports will fall short of expectations, given the growing protectionist pressures and continuing competitiveness challenges.”
Canada, the U.S., and Mexico abandoned their plan to renegotiate the pact by the end of the year, saying that talks will run through March 2018. The most recent round of talks ended in a deadlock and devolved into public spats among the negotiators amid controversial demands put forward by U.S. Trade Representative Robert Lighthizer.
With Canada’s trading relationship with its biggest partner in jeopardy, firms may choose to invest overseas rather than boost capacity domestically, the central bank said.
Real Canadian exports have tumbled by nearly 6 percent in the three months through August after a strong start to the year.
Uncertainty surrounding trade isn’t the only thing weighing on shipments abroad. The appreciation in the Canadian dollar amid the two rate hikes from the central bank this year is also likely dampening export prospects, policy makers said.
The Bank of Canada declined to quantify the repercussions for the domestic economy should the U.S. enact additional trade barriers.
BOMBARDIER
THE GLOBE AND MAIL. OCTOBER 25, 2017. Swedish prosecutors appeal acquittal of Bombardier employee accused of bribery
NICOLAS VAN PRAET, MONTREAL
Prosecutors in Sweden have appealed a court ruling that found Bombardier employee Evgeny Pavlov not guilty of "aggravated bribery" over his role in helping the Montreal-based plane and train maker win a $340-million (U.S.) contract in Azerbaijan.
Prosecutors Thomas Forsberg and Staffan Edlund of the Sweden's state authority against corruption appealed the verdict delivered earlier this month because they consider the court "made an incorrect legal assessment" in the case, the prosecutor's office said in a statement posted on its website Wednesday.
Mr. Pavlov, a 37-year-old Russian, was arrested in March on suspicion that he and several other Bombardier managers had bribed an Azerbaikani official to win the multi-million dollar train contract. In ruling on the case on Oct. 11, Stockholm's district court said the prosecutors have not proved that Mr. Pavlov promised or offered an inappropriate benefit.
"The prosecution against Evgeny Pavlov, as far as [proving he was] perpetrator of the bribe or aiding that crime, cannot be upheld," the Stockholm court said at the time. Mr. Pavlov was freed after spending six months in detention.
The ruling was focused narrowly on Mr. Pavlov's role in the founding of Trans-Signal-Rabita, Bombardier's local partner in a consortium that won a 2013 big to install sophisticated train signalling equipment along the main east-west rail line in the former Soviet republic of Azerbaijan. It did not directly address other questions, including whether any bribe was paid to Bombardier's Russian partners on the project.
Bombardier has denied any allegation of criminal wrongdoing. The company has said it was "pleased" with the Oct.11 verdict.
The development comes as the transportation company now works to finalize an industry-changing agreement with Europe's Airbus SE for its flagship C Series airliner announced last week. Airbus is taking control of the C Series program for no cash consideration upfront, pledging in exchange to throw its considerable global logistics and sales power behind the C Series as production of the airliner ramps up over the next two years.
One of the key elements of the tie-up is a plan by the partners to set up a final assembly line to make the C Series at Airbus's plant in Mobile, Ala., which they say will make it a domestic U.S. product that is not subject to import duties. The setup is crucial for Bombardier's 75-plane order from Atlanta-based Delta Air Lines and for future orders from U.S. customers.
Boeing Co. sued Bombardier in May alleging the Canadian plane maker used unfair government subsidies to sell the C Series at "absurdly low" prices in the United States. The U.S. Department of Commerce sided with Boeing in rulings in September and October and slapped preliminary import duties totalling 300 per cent on C Series planes. That legal process continues with final rulings expected early next year.
Executives with Airbus and Bombardier have said they expect Boeing to throw "everything in our way" in response to their alliance. However, on a conference call to discuss earnings Thursday, Boeing's chief executive, Dennis Muilenburg, downplayed the impact of his rivals' agreement. He said the deal was "not surprising" and that Boeing would not change course in its strategy to compete in the market for small single-aisle jets.
"We don't need to change the path that we're on" because of this, Mr. Muilenburg said. "We have lots of growth opportunity."
The Boeing CEO said he believes the plane maker's relationships with customers in Canada, including the federal government and airlines, will outlast the trade case against Bombardier.
The tie-up between Bombardier and Airbus has generally been well received by the financial markets. Bombardier's market capitalization climbed more than $1.2-billion in the week following the partnership announcement.
Among those who view the agreement with greater skepticism, however, is Moody's Investors Service.
In a release published late Tuesday, the ratings company said it downgraded Bombardier's corporate family credit rating to B3 from B2, its probability of default rating to B3-PD froim B2-PD, and its senior unsecured rating to Caa1 from B3. Moody's also affirmed its rating on Bombardier's speculative grade liquidity to SGL-2 and changed its ratings outlook on the company to negative from stable.
"The downgrade reflects our expectation that Bombardier's leverage will remain high through 2019 and its ability to generate positive cash flow in that year has headwinds related to the potential delay of C Series plane deliveries," Moody's analyst Jamie Koutsoukis said in a statement.
Ms. Koutsoukis said even though Airbus and Bombardier may set up a new C Series assembly line in Alabama to circumvent U.S. duties on the C Series, "this will likely mean a delay in deliveries to Delta, which was supposed to have started next spring, and could then delay cash flow breakeven" for the C Series program. The analyst also said she believes demand in the 100 to 150-seat aircraft market in which the C Series competes remains unclear.
"Airbus and Bombardier have forecasted demand to be up to 6,000 additional aircraft over the next 20 years in this segment, however historically, programs targeting the market have not sold well," Ms. Koutsoukis said.
Bombardier said it strongly disagrees with Moody's rating action. The company noted that several aerospace analysts have increased their forecasts for C Series deliveries by up to 50 per cent and that credit companies Fitch and Standard & Poor's have both characterized the Airbus deal as good for Bombardier.
"[The Moody's action] does not accurately reflect the value of our partnership with Airbus and is completely disconnected with the market reaction, which has been overwhelmingly positive," the company said in an e-mailed response sent Wednesday morning. "The latest developments de-risk Bombardier's program execution and improve its credit worthiness. Clearly, Moody's is the outlier here."
REUTERS. OCTOBER 25, 2017. Swedish prosecutor appeals Bombardier employee acquittal
Reuters Staff
STOCKHOLM (Reuters) - Swedish prosecutors on Wednesday appealed a court ruling earlier in October that an employee at Canadian aircraft and train maker Bombardier (BBDb.TO) was innocent of bribery, the Prosecution Authority said in a statement.
A logo of jet manufacturer Bombardier is pictured on their booth during the European Business Aviation Convention & Exhibition (EBACE) in Geneva, Switzerland, May 22, 2017. REUTERS/Denis Balibouse
The 37-year-old Russian man was arrested in March on suspicion that he together with several others at Bombardier had bribed an Azerbaijani official to secure a contract worth around $340 million.
On Oct. 11, a Swedish district court said prosecutors had not proved that the charged person had promised or offered an inappropriate benefit.
Reporting by Helena Soderpalm
REUTERS. OCTOBER 25, 2017. Exclusive: Canada pushed for Airbus deal as Bombardier courted China
Allison Lampert, Tim Hepher
MONTREAL/PARIS (Reuters) - The Canadian government encouraged Bombardier to make a deal with Airbus SE for its CSeries planes to thwart a potential venture with Chinese investors, according to five sources familiar with the matter.
It signaled its preference for Airbus after Bombardier failed to reach an agreement with Boeing Co earlier this year that would have given the U.S. company a stake in the CSeries jetliners, according to the sources. The Canadian government’s role has not been previously reported.
Prime Minister Justin Trudeau’s administration took a calculated risk in steering Bombardier toward Airbus, according to the sources. It helped save a key product for Bombardier and likely resolved a brewing trade dispute with the United States, but potentially set back efforts to improve trade and economic ties with China.
The deal with Airbus came at a critical time for Bombardier. Its $6 billion CSeries program, already losing money, had become the subject of a trade dispute in which Boeing charged in a complaint to U.S. authorities that the jetliners benefited from Canadian government subsidies and unfair pricing.
Bombardier had considered a Chinese partnership as early as 2015, after talks about a possible merger with Airbus became public and fell apart. This year, as negotiations with Boeing over a CSeries partnership faltered and concerns about the future of the program mounted, Bombardier’s interest in a deal with China intensified, two sources said.
The prospect of such a deal raised concern within the Canadian government, two of the sources said, where officials believed jobs or technology could be “siphoned away” to China. They also expressed uneasiness about what some saw as inadequate Chinese safeguards against intellectual property theft.
In a series of calls with Bombardier in August and September, Innovation Minister Navdeep Bains and Trade Minister Francois-Philippe Champagne, as well as senior officials in Trudeau’s office, urged Bombardier to contact the European company, the two sources said.
“From the federal government’s point of view, anything was better than a link-up with China,” according to an Ottawa source. The source said the government suggested to Bombardier that Chief Executive Alain Bellmare reach out to his counterpart at Airbus, Tom Enders.
The government’s efforts eventually helped pave the way for an Oct. 16 agreement in which Airbus took a majority stake in the narrow-body, medium-range CSeries jets for one dollar.
But they also came at a time when Ottawa is pushing for closer economic ties with Beijing. Canada, concerned about Washington’s threats to scrap the NAFTA trade deal, wants to bolster relations with China in order to cut its heavy dependence on exports to the United States. Talks between Ottawa and Beijing are ongoing.
Bombardier declined to discuss its CSeries negotiations. Representatives of Bains, Champagne and Trudeau declined to comment. Beijing officials declined to comment. Boeing also declined to comment.
Asked whether Airbus had stepped in because of concerns about China obtaining a stake in the CSeries, Airbus CEO Enders said: “We were obviously not privy to these discussions.”
AN IMPERFECT PARTNER
Bombardier’s most recent discussions about a Chinese tie-up centered on Comac, a Chinese state-owned firm developing passenger jets, according to a source familiar with the Canadian company’s thinking. Financial terms of any potential deal were not known. Comac did not immediately respond to requests for comment.
Sources said Comac was also among the companies Bombardier held talks with in 2015, along with national aerospace conglomerate AVIC and possibly a state-owned investment fund.
For Bombardier, a tie-up with the Chinese would have offered access to the world’s fastest-growing aviation market, providing a boost to its struggling CSeries program. Bombardier has not a secured CSeries sale in 18 months.
Inside Bombardier, however, executives worried that talks with potential Chinese partners were not moving quickly enough, according to sources.
With discussions stalled, Bombardier approached Boeing last spring, three of the sources said. Bombardier offered Boeing a stake in the CSeries under similar terms to those later offered to Airbus, two of the sources said.
The U.S. company agreed to study the proposal, but eventually decided against it based on its experience with a troubled purchase of Canadian aerospace assets in the late 1980s.
That once again Bombardier’s focus back on a deal with the Chinese - until Ottawa pressed the case for discussions with Airbus over the summer.
Asked why senior Canadian federal officials suggested to Bombardier that it talk to Airbus, the Ottawa source said: “People felt that Bombardier might not have thought of this option, given the collapse of the earlier talks.”
Officials from Airbus and Bombardier soon began what would be a series of meetings at restaurants in Paris, London and Munich. The meetings involved only four people - the two CEOs along with another executive from each company. A representative of the Canadian government did not attend.
Additional reporting by Brenda Goh in Shanghai; Editing by Amran Abocar and Paul Thomasch
REUTERS. OCTOBER 24, 2017. Bombardier reviewing CSeries deliveries due to UTC engine fixes
Allison Lampert
(Reuters) - Bombardier Inc on Tuesday said it was reviewing 2017 delivery plans for its CSeries jets, after U.S. engine parts maker United Technologies said it was resolving issues with its geared turbofan (GTF) engines to make them more durable.
United Technologies Corp, the maker of Pratt & Whitney jet engines, held back some GTF shipments to plane makers and offered spares to airlines, which had faced problems with engines already in service.
“Bombardier is working closely with Pratt & Whitney to evaluate and mitigate any potential impact on its customers and will provide a full update on November 2, when it issues its Q3 results,” spokeswoman Nathalie Siphengphet said by email.
Both Bombardier and Airbus SE have faced delayed deliveries of separate GTF engines.
Airbus Chief Executive Tom Enders said recently that Pratt’s engine has “tremendous potential” despite initial “teething problems.” The European plane maker is taking a majority stake in the CSeries program for $1.
“Pratt is working very hard to iron these out for our A320 family as well as for the CSeries,” he told Reuters in Montreal.
Montreal-based Bombardier has forecast deliveries of about 30 CSeries jets this year, but has only delivered 12 so far, raising questions about its ability to meet its guidance.
“We’ve got some supplier challenges so you know, we’ll see how the ramp up goes,” Bombardier Commercial Aircraft President Fred Cromer told Reuters on Friday. He did not provide names of suppliers.
Korean Air Lines Co Ltd, which in August forecast it would receive five CSeries jets this year, expects to get “hopefully one” by the end of 2017 and six more in the first half of 2018, President Walter Cho said on Wednesday.
Pratt & Whitney was delayed in producing a corrected engine liner required for the deliveries, he told Reuters on the sidelines of an industry conference in Taipei.
“But I want to be clear I still have full confidence in Pratt & Whitney,” Cho said. “They have been our choice of power plant for over 30 years and I have no doubt they will fix the problem and it will be a good airplane for our fleet.”
In April, Bombardier said Pratt would issue the liners for the engines in Korean’s order for delivery this past summer.
At the time, Bombardier instructed CSeries operators Swiss International Air Lines and airBaltic to inspect their engine combustion liners after 2,000 flight hours. Pratt & Whitney said it had added a combustor lining inspection to its regularly scheduled maintenance of the engine.
Reporting by Allison Lampert in Montreal and Yashaswini Swamynathan in Bengaluru, additional reporting by Jamie Freed in Taipei and Hyunjoo Jin in Seoul; Editing by Sai Sachin Ravikumar, Tom Brown and Himani Sarkar
REUTERS. OCTOBER 25, 2017. Boeing ups forecasts, takes further air tanker charge
Ankit Ajmera, Rachit Vats
(Reuters) - Boeing Co (BA.N) racked up a further $329 million charge for its troubled KC-46 aerial refueling tanker program in quarterly results on Wednesday, paring gains in profit margins compared with a year ago and prodding its shares lower.
The world’s biggest maker of jetliners raised its full-year earnings and cash flow forecasts as it beat third-quarter earnings estimates and reported higher margins in its main commercial airlines segment and overall business.
But the new charge on the air tanker, which some analysts had speculated could return to haunt Boeing despite assurances to the contrary in April, meant the program has now lopped a total of about $1.9 billion off the company’s net income after tax.
Boeing shares, up almost 70 percent this year, fell 1.2 percent to $262.87 in morning trade in New York.
“Boeing’s Q3 report looks solid and largely meets our expectations on several fronts,” J.P. Morgan aerospace analysts said in a note after the results.
“The stock has performed well into the print, however, and so it is not clear that modestly higher guidance will drive much outperformance today.”
Boeing has streamlined production, shed 8,200 jobs and wound down development costs this year to dramatically improve profit and cash flow, as it competes with European rival Airbus SE (AIR.PA) amid burgeoning demand from airlines for more capable planes at lower prices.
Core operating margin rose to 9.8 percent in the third quarter, from 9.2 percent a year earlier, and the company raised its forecast for operating cash flow for the full year to $12.5 billion from a previous $12.25 billion.
Boeing said it now expects 2017 core earnings per share of $9.90-$10.10, compared with its previous forecast of $9.80-$10.00, due to a lower-than-expected tax rate.
A year ago Boeing included a tax gain of 98 cents per share in the third quarter, driving a dip in core earnings for the same period this year to $2.72 per share from $3.51 per share.
Core earnings for the quarter still beat the average analyst estimate of $2.66 per share, according to Thomson Reuters I/B/E/S, while revenue rose 1.7 percent to $24.31 billion, beating the estimate of $23.92 billion.
The company is moving into the production phase on the KC-46 and says it has identified most of the issues that need to be addressed ahead of the delivery of the first 18 tankers in 2018.
Muddying the waters on the results was Boeing’s new services business, which the company broke out for the first time in the third quarter.
The unit, launched in July, is aimed at offering maintenance, technical and analytical support to customers, as the company looks to capture more of the higher-margin services spare-parts revenue after a plane is sold.
The company hopes it will generate $50 billion a year in revenue within the next five to 10 years. It yielded $3.57 billion in the third quarter and an operating margin of 14.2 percent, down 0.7 percentage points compared with a year earlier.
Reporting by Ankit Ajmera and Rachit vats in Bengaluru; Editing by Saumyadeb Chakrabarty and Patrick Graham
NAFTA
REUTERS. OCTOBER 24, 2017. Mexico open to NAFTA accord against forex manipulation: minister
Anthony Esposito
MEXICO CITY (Reuters) - Mexico has no objection to any pledge with its NAFTA partners aimed at preventing currency manipulation, as long as it does not affect domestic monetary policy, Mexican Economy Minister Ildefonso Guajardo said on Tuesday.
Mexico, the United States and Canada are in the midst of tough talks to renegotiate the North American Free Trade Agreement (NAFTA), with the latest round of formal discussions scheduled to take place in Mexico City next month.
The U.S. Trade Representative’s office wants a provision to deter currency manipulation as part of the NAFTA renegotiation. In a hearing at Mexico’s lower house of Congress, Guajardo said his government had “no problem” with that proposal.
“However, that can’t affect the conduct of monetary policy,” Guajardo told lawmakers.
The minister later told reporters Mexico needed to define its positions for the next session of talks after the United States made a series of proposals that were met with stiff resistance during the previous round in Washington.
“Mexico must set out all its proposals and respond to the ambitions of our trade partners on every issue,” he said.
U.S. President Donald Trump has threatened to pull out of the accord if he cannot renegotiate it to the advantage of the United States, arguing it has cost U.S. manufacturing jobs and caused a goods trade deficit of over $60 billion with Mexico.
However, the Mexican government has repeatedly said a reworked NAFTA must also be in the interests of Mexico, and that the country will walk away from the talks if Trump triggers the process of exiting the 23-year-old agreement.
Guajardo said if NAFTA did unravel, farm produce and petrochemicals would be the most affected imports into Mexico, and that the country needed to be clear about what alternative markets it could tap if necessary to face the challenge.
Last week negotiators from Mexico, Canada and the United States agreed to extend the NAFTA talks into the first quarter of 2018. After that period, formal campaigning to elect Mexico’s next president will begin in the run-up to a July vote.
If NAFTA was on the agenda of the early presidential hopefuls, it was healthy for Mexico, Guajardo added.
Turning to the Trans-Pacific Partnership, a Pacific region trade deal finalized in 2016 that Trump pulled out of after taking office, Guajardo said it was important that the remaining 11 signatories laid the foundations for the accord in case a future U.S. president had a change of mind about it.
Editing by Dave Graham and Lisa Shumaker
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