CANADA ECONOMICS
APEC - TPP - VIETNAM
PM. November 8, 2017. Joint Statement by Canada and the Socialist Republic of Vietnam on the establishment of a comprehensive partnership Hanoi, Vietnam
Canada and Vietnam have decided to enhance their cooperation and friendship towards a comprehensive, substantive, effective, stable and sustainable relationship both bilaterally, regionally and internationally, to meet their interests and to contribute to maintaining peace, stability, cooperation and development in the Asia Pacific and the world, based on respect for the Charter of the United Nations, basic principles of international law, and their respective national law.
Founded on the fruitful and multifaceted relationship they have developed since establishing their diplomatic relations in 1973, Canada and Vietnam have jointly decided to establish a comprehensive partnership encompassing the following areas:
Political and Diplomatic
1. Canada and Vietnam will continue the exchange of high-level visits and regular senior-level dialogues between their respective governments, including bilateral consultations at deputy minister level, and welcome interactions between entities associated with their political parties and their parliaments.
2. Canada and Vietnam will continue to cooperate closely in multilateral institutions, including the United Nations (UN), the International Atomic Energy Agency, the Association of Southeast Asian Nations (ASEAN) and La Francophonie. Canada and Vietnam reaffirm their shared commitment to maintain world peace, security and stability, uphold the UN Charter and principles of international law, and will consider cooperation in relevant areas of mutual interest bilaterally and multilaterally in a respectful and constructive manner, in order to contribute to the promotion of their relationship.
3. Canada and Vietnam emphasize the importance of maintaining peace and stability in the Asia Pacific region; supporting the maintenance of a rules-based order for the seas and oceans, including the South China Sea. This approach will be based on international law, including the 1982 UN Convention on the Law of the Sea; supporting the assurance of freedom of navigation, aviation, trade and the use of oceans for peaceful purposes, protecting the environment and maritime ecosystem.
4. Canada and Vietnam affirm their support for the peaceful settlement of disputes in the South China Sea, including full respect for diplomatic and legal processes and in accordance with international law.
5. Canada and Vietnam underscore the important role of ASEAN in the regional architecture, support efforts to build a strong and prosperous rules-based ASEAN community, and welcomes ASEAN initiatives to maintain regional peace and security and prevent confrontations, such as the Declaration of Conduct of Parties in the South China Sea and the Code of Conduct in the South China Sea.
6. Canada and Vietnam will continue to work together to address global challenges, including counter terrorism, the proliferation of weapon of mass destruction, and non-traditional challenges such as transnational crimes, climate change, maritime security, food security, water security and safeguard of the environment. Canada and Vietnam will work to protect biodiversity and habitats from illegal exploitation and trafficking as well as support actions to implement the Ha Noi Statement on the Illegal Wildlife Trade.
7. Canada and Vietnam recognise the importance of protection and promotion of human rights in conformity with their own constitutions and respective international commitments, including to uphold the UN Charter and Universal Declaration of Human Rights, and express willingness to enhance mutual understanding.
Trade and Investment
8. Canada and Vietnam are committed to reciprocal trade and investment as an important driver of their relationship. Canada and Vietnam will continue to maintain their interest in each other as important markets and promote bilateral trade and investment in key sectors.
9. Canada and Vietnam will facilitate trade transactions and promptly resolve issues that may arise in the trade and investment relationship based on a principle of equality, mutual benefit and cooperation; and enhance collaboration in multilateral economic, trade and financial cooperation mechanisms, including the World Trade Organization, the Asia Pacific Economic Cooperation forum, the International Monetary Fund and the World Bank.
10. Canada and Vietnam will examine the potential for a Canada-ASEAN free trade agreement, and promote implementation of the Trans-Pacific Partnership.
Development Cooperation
11. Canada and Vietnam note the contribution of development cooperation to their overall relationship over the past decades, and will continue their strong partnerships for sustainable development in their bilateral relations. Canada recognizes Vietnam’s outstanding achievements in poverty reduction since the 1990s and its current development aspiration under Vietnam 2035. Vietnam highly appreciates the official development assistance that Canada has provided and the long-standing partnership underpinning bilateral development cooperation.
12. Canada and Vietnam renew their commitment to fulfilling the terms of their 1994 General Agreement on Development Cooperation, as the basis of their continued partnership. Canada and Vietnam commit to continuing their longstanding policy dialogue on enhancing development effectiveness and efficiency as mutually beneficial goals and as fundamental prerequisites for continued cooperation.
13. Canada recognizes the need for a new, more strategic approach to development cooperation and will seek to allocate available resources to programs that align with Canada’s feminist International Assistance Policy, and respond directly to Vietnam’s developmental challenges, such as poverty reduction, rural developmentas outlined in Vietnam’s Socio-Economic Development Plan 2016-2020. In this regard, Canada’s development cooperation will support Vietnam’s efforts to combat climate change and promote sustainable development through the implementation of the UN’s 2030 Agenda for Sustainable Development.
Defence and Security
14. Canada and Vietnam share common interests for peace and security in the Asia Pacific region and will continue to engage in multilateral and bilateral dialogue and cooperation on national defence and security matters, capacity building and training.
15. Canada and Vietnam will explore and advance cooperation in the areas of peacekeeping, maritime security, humanitarian assistance and disaster relief, among other areas of mutual interest and benefit. Canada and Vietnam will continue to explore ways to enhance cooperation on national defence through the Military Training and Cooperation Program, as well as training programs led by Vietnam.
16. Canada and Vietnam have decided to explore new areas of cooperation to enhance security, including capacity building in areas of mutual interests.
Cultural and Academic Exchange
17. Vietnam notes favourably Canada’s continued efforts to attract growing numbers of Vietnamese students to pursue studies at Canadian educational institutions, and Canada welcomes the growing number of Vietnamese students pursuing educational opportunities in Canada.
18. While recognizing that education is under the jurisdiction of Canadian provincial governments, Canada and Vietnam have decided to promote and facilitate enhanced academic cooperation, mobility, including through the establishment of partnerships and student exchange programs between educational institutions.
Science, Technology and Innovation
19. Canada and Vietnam will promote and strengthen cooperation in areas such as energy, clean and sustainable technologies, agriculture and agri-food, information and communications technology and marine and environmental research, including climate change adaptation and mitigation. The aim will be to facilitate engagement of various innovation stakeholders to share information, experience and topics of mutual interest. Canada and Vietnam will further endeavor to explore potential opportunities to collaborate in respect to research and development, deployment and commercialization of innovative, forward-looking clean technology to address global climate change challenges.
People-to-people ties
20. Canada and Vietnam welcome the strong and growing people-to-people links that already exist between them across all levels of society and across a broad spectrum of business, academic, media, cultural, sports, tourism and non‑governmental organisations. Canada and Vietnam will work to strengthen these links, through cooperation in various fields, provinces and territories. Canada and Vietnam recognize the contributions of the Vietnamese community to Canada. Canada’s policy of multiculturalism welcomes the Vietnamese culture and values, and this promotes friendly relations between their peoples. Canada and Vietnam encourage people-to-people ties that will foster friendly bilateral relations.
THE GLOBE AND MAIL. THE CANADIAN PRESS. NOVEMBER 8, 2017. Canada won't be rushed into signing TPP, Trudeau insists in Vietnam
ANDY BLATCHFORD, HANOI, VIETNAM
Prime Minister Justin Trudeau insists he will not be pressed into signing an updated Trans-Pacific Partnership treaty too hastily, even if some of Canada's partners are keen to secure a quick agreement.
Trudeau made the remarks Wednesday when asked whether he would walk away from the 11-country trade pact if the revised deal failed to include several new "progressive" chapters Canada has been pushing for.
"We believe that progressive, solid trade deals can help citizens in all sorts of different countries, at different levels of development and our ministers are very much focused on that," Trudeau told reporters in Hanoi, where he started his multi-day trip through Southeast Asia.
"But let me, of course, remind everyone that Canada will not be rushed into a deal that is not in the best interests of Canada and of Canadians."
Trudeau then added, in French: "I can assure people that we will not be rushed into signing a deal at all costs."
The remaining TPP economies are trying to revive the deal following President Donald Trump's decision to withdraw earlier this year.
The TPP is expected to be a central theme at this week's Asia-Pacific Economic Co-operation summit in the Vietnamese city of Danang. Trudeau will attend the APEC meetings and there has been speculation that some kind of deal could be reached by the end of the summit.
International Trade Minister Francois-Philippe Champagne has said Canada wants the updated TPP to contain progressive chapters on the environment as well as workers' and women's rights.
But trade experts have predicted that persuading Asia-Pacific economies on progressive chapters will be a tough sell.
Some of the countries at the table are far less developed than Canada and would have difficulty implementing them, while others might prefer to leave social issues separate from trade agreements.
Trudeau is travelling in the Asia-Pacific over the next week to strengthen Canada's ties to the region.
He arrived Wednesday in the buzzing, moped-filled city of Hanoi. It's the capital of a fast-growing country that has a deep cultural connection for many Canadians.
Trudeau met Vietnamese President Tran Dai Quang, Prime Minister Nguyen Xuan Phuc and civil society leaders, with whom he discussed issues like human rights, gender equality and freedom of expression.
On Thursday, he's scheduled to travel to Ho Chi Minh City to visit the stock exchange, hold a roundtable with business leaders and appear at a university event.
He will head to Danang on Saturday for the two-day APEC leaders' summit, before moving on to the Philippines to attend the annual meetings of the Association of Southeast Asian Nations.
At both the APEC and ASEAN events, Canada is expected to press its trade agenda. It's already engaged in exploratory trade talks with the ASEAN countries as well as negotiations to salvage the TPP.
When it comes to the members of the TPP, much of the focus remains on Japan, the world's third-largest economy.
But Vietnam is also at the TPP table and it's an ASEAN member, which sets it up as a key partner in a region where Canada wants to increase its presence.
Vietnam, projected to see economic growth this year of 6.3 per cent, features a sturdy consumer base, an emerging business class and an expanding footprint in supply chains.
Dominic Barton, the global managing partner of consulting giant McKinsey & Co., said in an interview that the rapid changes in Vietnam's key cities remind him, in some respects, of what Shanghai went through less than two decades ago.
Barton, who also chairs the Trudeau government's economic growth council, said Vietnam is an example of why Canada must be "motoring ahead" into Asia, particularly with so much uncertainty around the renegotiation of the North American Free Trade Agreement.
"We've got to go hard on those Asian relationships," said Barton, who led McKinsey operations in Asia and South Korea for nearly a decade.
"I think we just have to have irons in many fires."
Dan Ciuriak, a former deputy chief economist for what is now known as Global Affairs Canada, believes an updated TPP pact is closer to fruition than Canada's potential deals with ASEAN or China.
"Vietnam and Japan would be the two biggies for Canada in terms of diversifying trade," said Ciuriak, who is now the director of Ciuriak Consulting Inc.
There are other parts of the original TPP where Canada would like to see modifications.
A senior government official has said Canadian negotiators are seeking changes to the original TPP in several areas, such as its intellectual-property provisions, cultural exemptions and its impact on Canada's supply management system for dairy, poultry and eggs.
Former Quebec premier Jean Charest, who is honorary chair of the ASEAN-Canada Business Council, said Vietnam not only shows real economic potential, it also has strong people-to-people links with Canada.
Both countries have French heritages and both are members of la Francophonie, he said in an interview.
But Charest said it's the story of the Vietnamese refugees, or boat people, who came to Canada in the late 1970s that really forged the bond.
By 1980, around 60,000 people from Vietnam, Cambodia and Laos arrived in Canada after fleeing violence in their homelands. Today, about 240,000 people in Canada have Vietnamese roots.
"Certainly, the story of the boat people in Quebec, I can tell you without hesitation that it resonates positively in the minds of Quebecers as being a good example of integration into the broader Quebec society," said Charest.
However, when looking at today's Vietnam, Charest said the promising economy is accompanied by negatives, such as the fact "it is a communist regime and everything that comes with it."
Canada's pursuit of a more open trading relationship with Vietnam comes with pressure to have frank discussions about the serious concerns over the communist government's human-rights record.
Human Rights Watch calls the Vietnam's record "dire in all areas" because of the Communist party's firm grip on political power. The group also said the government has harassed, intimidated, physically harmed and jailed its opponents.
Earlier this week, Conservative Sen. Thanh Hai Ngo urged Trudeau to use his time with Vietnamese leaders to raise Canada's "serious concerns" about Vietnam's human-rights abuses, such as its suppression of a growing democratic movement.
Canada and Vietnam signed a partnership agreement Wednesday that would focus on deepening co-operation in many areas, like trade, security and cultural exchanges.
Trudeau told reporters the agreement would also help advance the countries' ongoing dialogue on human rights.
REUTERS. NOVEMBER 8, 2017. Canada says won't be rushed on TPP trade deal at Asia-Pacific meeting
Matthew Tostevin, Mai Nguyen
DANANG, Vietnam (Reuters) - Canada said on Wednesday it would not be rushed into a revived Trans Pacific Partnership (TPP) free trade deal as the 11 remaining members met in Vietnam to discuss the pact ditched by U.S. President Donald Trump.
Ministers gather for a group photo after the APEC Ministerial Meeting (AMM) ahead of the Asia-Pacific Economic Cooperation (APEC) Summit leaders meetings in Danang, Vietnam, November 8, 2017. REUTERS/Made Nagi/Pool
Clear agreement on proceeding without the United States would be a boost for the principle of multilateral free trade pacts over the bilateral deal-making that Trump argues will give a better result for American workers.
Japan has been lobbying hard ahead of this week’s meetings on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit to get full signoff on an agreement that is also a counterweight to China’s growing regional dominance.
But Canada, whose economy is the second biggest among the TPP-11 after Japan, has joined other countries seeking changes or with misgivings about moving too fast.
“Canada will not be rushed into a deal that is not in the best interest of Canada and of Canadians,” Prime Minister Justin Trudeau told a news conference in Vietnam’s capital Hanoi.
The TPP aims to eliminate tariffs on industrial and farm products across a bloc whose trade totaled $356 billion last year. It also has provisions for protecting everything from labor rights to the environment to intellectual property - one of the main sticking points.
The original 12 countries had reached agreement on the TPP in 2016, but Trump withdrew in one of his first acts in office - throwing its very survival into doubt.
FRIDAY MEETING
Trump and other APEC leaders, including President Xi Jinping of China and Russian President Vladimir Putin, will meet on Friday in the Vietnamese seaside resort of Danang.
Leaders of the TPP-11, all of which are also APEC members, will break away to consider proposals for proceeding with the trade deal that have been drawn up by their trade negotiators and ministers.
Japan had said it hoped a broad agreement could be reached among the 11 countries in Danang.
“This is not about Friday, it’s about the next decades,” Canada’s trade minister, Francois-Philippe Champagne, told Reuters. “We are constructive, we are even creative at the table. At the same time we want to make sure we get the right deal.”
The positions of both Canada and Mexico are also complicated by the fact that they are renegotiating the North American Free Trade Agreement (NAFTA) with the Trump administration.
Also in doubt is the appetite of New Zealand’s new government to move ahead swiftly. Prime Minister Jacinda Ardern said it was too early to say a deal could be reached this week.
“We see a real responsibility to come in and make sure that the agreement is in the best interest of New Zealand,” she said.
Both Malaysia and Vietnam would have been big beneficiaries of the original agreement as a result of the removal of U.S. tariffs. Malaysia, with an election approaching and growing ties to Beijing, has less incentive to move ahead fast.
Among options being discussed by TPP countries is whether to suspend some provisions of the original agreement to avoid having to renegotiate it and potentially to entice the United States back in the long term, officials said.
Additional reporting by Ana Nicolaci da Costa in Wellington and Mi Nguyen in Hanoi; editing by Mark Heinrich
REUTERS. NOVEMBER 8, 2017. IMF, BOJ member say Japan needs to keep stimulus running
Leika Kihara, Sumio Ito
TOKYO/MIYAZAKI, Japan (Reuters) - The IMF on Wednesday urged Japan to maintain its massive monetary stimulus to boost consumer prices, a view echoed by a central bank board member, reinforcing expectations policy will remain accommodative.
A man runs on a crosswalk at a business district in central Tokyo, Japan September 29, 2017. Picture taken September 29, 2017. REUTERS/Toru Hanai
International Monetary Fund Managing Director Christine Lagarde said Bank of Japan Governor Haruhiko Kuroda was doing the right thing by committing to keep the money spigot wide open until inflation hit his 2 percent target.
“One of the strengths of central bankers is to be very clear in their communication and determined in their resolve, which clearly Governor Kuroda has demonstrated,” Lagarde told Reuters on Wednesday.
The BOJ has faced mounting criticism that its huge asset purchases are distorting markets and pushing Tokyo stock prices - which hit a near 26-year high this week - beyond levels justified by economic fundamentals.
But with inflation distant from its target, the BOJ has said it is nowhere near dialing back the stimulus, even as its U.S. and European counterparts eye an exit from crisis-mode policies.
BOJ board member Yukitoshi Funo on Wednesday also defended the asset buys, saying he saw no need now to slow its purchases of exchange-traded funds (ETF) from the current pace of 6 trillion yen ($53 billion) per year.
“Stock prices aren’t overheating,” Funo told a briefing in Miyazaki, southern Japan, adding that it was “very favorable” that stock prices had risen so much.
ROOM FOR TWEAKS
Market players see a good chance Kuroda could be reappointed after his current five-year term ends in April, though he has been under growing calls for more transparency on how the BOJ could dial back stimulus.
A contender for the job who is a close aide to Prime Minister Shinzo Abe said the central bank needed a new leader to rebuild the regime.
“How do you evaluate the fact the core-core inflation rose a meager 0.1 percent after (nearly) five years (under Kuroda) and how do you evaluate the governor who has done only so much?” Etsuro Honda, Japan’s ambassador to Switzerland, told Reuters.
While Funo, a former auto executive, ruled out the chance of an immediate withdrawal of stimulus, he said the BOJ should be vigilant to the threats prolonged monetary easing posed.
“We’re not assuming we won’t make any changes to all of our various policy tools until 2 percent inflation is achieved,” he said, leaving open the chance of tweaking some parts of the framework before others.
The comment reflects a growing view within the BOJ that its next move should be to roll back, not ramp up, its stimulus given the rising cost and diminishing returns of the program, although there are varying opinions on how and when policy should be tweaked.
Lagarde said the diverging policy paths of major central banks had not led to massive and disruptive capital outflows in Asia, thanks to the cautious approach and clear communication by central bankers on their policy shifts.
“We believe these conditions can help to ensure that monetary policy changes do not provoke unnecessary capital flow movements,” she said.
Under a policy framework adopted last year, the BOJ guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent. It also buys government bonds and riskier assets, including ETFs.
($1 = 113.8100 yen)
Reporting by Leika Kihara in Tokyo and Sumio Ito in Miyazaki; Additional reporting by Stanley White, Chris Gallagher, Tetsushi Kajimoto and Takashi Umekawa; Editing by Sam Holmes and John Stonestreet
IMF. November 7, 2017. Japan and the IMF: Working Together to Promote Inclusive and Sustainable Growth
Keynote Address by Christine Lagarde, Managing Director, IMF
IMF Office for Asia and the Pacific 20th Anniversary: IMF-Japan Collaboration for the Asia-Pacific Region
I. Introduction & Theme
Vice Minister Asakawa, Honored Guests, Ladies and Gentlemen—Good morning! Ohayo gozaimasu.
Thank you, Chikahisa, for the warm introduction, and thank you to all my colleagues at the IMF Regional Office for Asia and the Pacific for organizing this important conference.
It is wonderful that our discussions are being held at this special time of the year. If autumn is in the air, it must be time for the Gakuensai, the immensely popular university festivals organized by students.
These Gakuensai festivals are forward-looking in their display of cutting-edge academic work. They are also firmly grounded in shared experiences, from dance performances to food stalls with delicious traditional dishes.
“Forward-looking” and “firmly grounded in shared experiences”—that is a fitting description of the partnership between Japan and the IMF that has been forged over the past 65 years.
Japan as a founding member of the IMF has throughout been a steadfast supporter of the Fund’s work—from our analysis and policy advice, to financial assistance, to helping our members strengthen economic governance and institutions.
This commitment to active IMF membership has given Japan a powerful and influential voice in the constantly evolving debate about the shape of the global economy.
By working together, we have contributed to economic transformations—here in Japan, in the Asia Pacific region, and across the globe.
We have traveled this route together; we have changed and adapted—while staying true to our core principles.
Back in 1964, at the IMF Annual Meetings in Tokyo, Prime Minister Hayato Ikeda said that “the vital challenge which we all face, whether domestically or internationally, is to promote stable economic growth and reduce the disparity between the rich and the poor.”
And more recently, Prime Minister Abe has reinforced this approach through far-reaching reforms, including an increased focus on women’s economic empowerment.
Inclusiveness and economic stability have been at the heart of our shared experiences. They remain our main priorities as we move forward.
So, today I would like to talk about how we can strengthen our partnership and how we can use our combined experiences to promote more inclusive and sustainable growth.
II. Shaping the Future of the Asia Pacific Region
Let me start by focusing right here on the world’s most dynamic region.
Over the past three decades, Asia has helped transform the world—from creating the world’s largest middle-classes, to driving the greatest poverty reduction in the history of mankind.
Over the past decade, Asia has energized the world by contributing two-thirds of global growth, while other regions were experiencing weak recoveries.
The good news is that the global economy is expected to grow faster this year and next—3.6 percent and 3.7 percent—positive momentum that is reinforcing stronger growth in Asia.
This offers policymakers a major opportunity to build on the progress made so far, while addressing current challenges. These include demographics and productivity, the two longer-term issues that are critical for all economies in the region.
Countries with young and growing populations, such as India and Indonesia, can seize this opportunity to reap a “demographic dividend.”
At the same time, countries such as China, Japan, and Korea, can take steps to mitigate the economic effects of rapidly aging populations.
And across Asia, there is room to reenergize productivity growth to ensure higher living standards in the future.
Japan at the forefront
So how can Asia meet these challenges? While there is no single policy recipe in this incredibly diverse region, all countries can benefit from sharing their experiences.
Of course, Japan has some of the world’s richest policy experiences—from being Asia’s original emerging market, to being at the forefront of policy innovations to manage demographic and productivity trends.
A good example is Japan’s focus on scientific and technological innovation. This includes public initiatives to promote a “fourth industrial revolution,” from artificial intelligence, to big data, to robotics, to biotech.
And I look forward to the 2020 Tokyo Olympics, where Japan is looking to showcase its engineering excellence—with plans ranging from large, free-floating holograms in the air, to building a flying car in time to light the Olympic flame.
Another good example of policy innovation is Japan’s commitment to boost the proportion of women in the workforce.
Over the past five years, the number of female workers increased by 1.6 million, not least because of supportive policies. Now there is room to further increase the focus on expanding access to childcare, reducing long working hours, and promoting “equal pay for equal work.”
This can truly be a game changer for Japan. It would lift potential growth and improve inclusivity.
Empowering women and fostering more inclusive growth is the right thing to do—both morally and economically—especially in countries where inequality is high and rising.
Last year, for example, the combined wealth of 637 Asian billionaires increased by almost a third to US$2 trillion[1]—just a bit less than India’s GDP, where the population is 1.3 billion.
To put it simply—and as IMF research has shown—when the benefits of growth are shared more broadly, growth is stronger, more durable, and more resilient.
For many countries in Asia, this means retooling tax systems and spending policies. It means putting a greater emphasis on policies such as conditional cash transfers for low-income families and expanding access to health services and high-quality education.
Cross-country sharing of these experiences and what policies have worked is critical—in Asia and across the globe.
III. Fostering Stronger Cooperation
a) Asia, Japan, and the IMF
That is why the IMF is deeply engaged in sharing policy ideas and best practices—and in helping our members boost their capacity for sound economic management.
For example, we have drawn on our global experience to: work with the National Bank of Cambodia to modernize its financial system; help countries raise public revenues more efficiently; and train nearly 30,000 individuals through free online economics courses.
These are only some of our capacity development efforts to help countries build more inclusive and sustainable economies.
This work lies at the heart of our partnership with Japan. It is a vital part of our shared experiences.
It is our very own Gakuensai festival that brings us closer together—and not just for the delicious Japanese food.
Over the past three decades, Japan has contributed about $600 million to our capacity development efforts—benefiting more than 130 countries and contributing to economic transformations, especially here in Asia.
On behalf of our entire membership of 189 countries, I would like to express my sincere gratitude to the government of Japan—and the people of Japan—for their exceptional support.
This includes direct support for capacity development, as well as support for the IMF’s work more generally.
We are especially grateful for Japan’s steadfast backing of our Regional Office for Asia and the Pacific here in Tokyo, which has underpinned our engagement with Asia, and whose 20th anniversary we are celebrating here today.
b) The Global Economy and the IMF
Of course, our partnership with Japan is not only about Asia. It is also about the global economy.
Think of our joint efforts to achieve the Sustainable Development Goals, building on Japan’s longstanding commitment to assist low-income countries. Or think about our cooperation on international taxation, our fight against money laundering and terrorist financing, and our shared responsibility to address climate change.
On that point, our estimates suggest that a 1 degree Celsius increase in a country with an average annual temperature of 25 degrees—such as Bangladesh, Haiti, or Gabon—could reduce per capita GDP by nearly 1.5 percent.[2]
These and other global challenges require stronger international cooperation. We know from our shared experience that cooperation works. But how can we strengthen the multilateral system that has underpinned the global economy for more than 70 years?
One avenue is to encourage better trade deals. For example, the planned agreement between Japan and the European Union signals a fresh approach in its provisions on antitrust, corporate governance, and sustainable development.
We are also stepping up efforts to strengthen the global financial safety net, building on our partnership with Japan:
- Back in 2009, Japan committed $100 billion for IMF lending programs, encouraging other countries to help bolster the Fund’s resources during the financial crisis.
- We are now working with Japan to deepen our engagement with regional financial arrangements—to help ensure that the various layers of the global safety net work together seamlessly.
Above all, we are constantly pushing ourselves and our members to reach across borders and learn from each other—not just through international conferences and sharing best practices, but through personal relationships.
For instance, whenever my colleagues visit government institutions here in Japan, they always encounter people with IMF work experience. Why? Because over the past 10 years alone, some 150 Japanese economists have worked at the Fund.
And I am proud to be part our shared personal experiences.
I have learned so much from my Japanese colleagues—from staff economists, to our Japanese Executive Director Masaaki Kaizuka, to my colleague on the management team Mitsuhiro Furusawa and his predecessors.
In other words, this is a partnership that is built on “heart-to-heart communication” — I-shin-den-shin.
IV. Conclusion
Let me conclude with an ancient Japanese moral principle: “Cherish the harmony among people.”[3]
This spirit is deeply rooted in Japanese communities and culture. It also captures the essence of our partnership with Japan: a friendship that can help foster a deeper understanding and trust among all nations.
By working together, by trusting each other, we can help create a harmonious economy—one in which all people can benefit.
Thank you very much — domo arigato gozaimasu.
NOTES
[1] UBS/PwC Billionaires Report, 2017.
[2] IMF, World Economic Outlook (Washington: September 2017), Chapter 3.
[3] From a 1,400-year-old codex of moral principles.
INFLATION
BANK OF CANADA. November 7, 2017. Understanding Inflation: Getting Back to Basics. Stephen S. Poloz - Governor. CFA Montréal and Montreal Council on Foreign Relations. Montréal, Quebec
Introduction
Inflation targets have been the centrepiece of monetary policy in Canada for over 25 years now. Every Canadian has benefited. The high and volatile inflation and interest rates of the 1970s and 1980s are a distant, though painful, memory.
Recently, however, inflation targeting has come under increased scrutiny. Many advanced economies have seen inflation either slow down or remain weak, even while economic growth has been strengthening. This has led some to question whether central banks can still target inflation effectively. Some have even suggested that central banks may be losing the ability to understand the processes that drive inflation.
I hope to persuade you today that this is not the case. I’ve been at this for a long time, having been part of the team that developed the Bank of Canada’s policy framework back in the 1980s. Inflation targeting, supported by a flexible exchange rate, is the product of an enormous cumulation of thought and research spanning an entire generation. In my speech today, I intend to show that the Bank has a solid understanding of the inflation process and retains the ability to guide inflation to our targets over time.
Reviewing the Fundamentals
I will start with a quick review of the fundamentals. We implement monetary policy through our key policy interest rate. Changes to this rate influence other interest rates, such as mortgage rates. Through this channel and others, policy rate changes affect decisions about spending, saving and investment. These adjustments work through the economy and eventually have an effect on inflation. Importantly, it takes one and a half to two years for a change in our policy rate to have its full impact on inflation.
The goal of our policy is to keep the annual rate of CPI inflation at the 2 per cent midpoint of a 1 to 3 per cent range. The idea of a target range has been a key feature of our framework from the beginning. It serves to recognize that inflation targeting is an imprecise business. First, the transmission from monetary policy to inflation contains several economic linkages, each of which is complex and highly uncertain. Second, the inflation data themselves are subject to short-term fluctuations that make it difficult to hit the target exactly. A central bank can do little about fluctuations in gasoline prices, for example, yet these transitory movements have a large influence on inflation movements from month to month.
Given these uncertainties, it is not realistic to expect our policy instrument to control inflation down to tenths of a percentage point. In fact, the two-percentage-point inflation-control range is a reasonable approximation of the degree of precision that we can expect to achieve. It is much like piloting a boat in rough water: the boat is buffeted in one direction or the other, and the pilot must continuously adjust the heading so that the fluctuations average to zero in order to arrive at the desired destination.
To help steer through these short-term fluctuations in inflation, we make use of various measures of core inflation. These measures help us judge the underlying trend of inflation—the rate we would see if no sector-specific or one-off factors were at work. Put another way, these measures help us separate inflation’s signal from its noise.
The underlying trend in inflation is driven by the laws of supply and demand, which are as applicable today as they ever were. Excess demand pushes inflation up; excess supply pushes inflation down. Central banks exploit this relationship, working to create excess demand or excess supply in the economy, to target the inflation rate.
A central role in this relationship between the economy and inflation is played by inflation expectations. The more anchored those expectations are, the more quickly the economy will find its way back to normal after an economic shock. This is known as the credibility dividend: a credible central bank will see inflation expectations well anchored at the target level and will have a relatively easy time restoring normality after a shock. What this means is that the underlying trend in inflation may become more stable as expectations become more anchored. In short, the more successful the inflation target is, the less obvious the relationship between economic shocks and inflation will become.
But that does not mean that the relationship is no longer there. The relationship between inflation and excess demand or supply really represents a summary of a number of more complex underlying linkages between companies and the labour market. Consider a company that finds itself running at full capacity. If it sees increased demand for its product and expects that demand to persist, the company is likely to invest in new capacity and expand its workforce. If unemployment is already low, the company may have to increase wages to attract new employees. Over time, higher wages can add to inflationary pressure. This is how excess demand works its way through the system and translates into higher inflation.
In addition to these domestic drivers of inflation, a couple of key external factors can also play a role. For example, exchange rate movements can have both direct and indirect impacts. If the value of the Canadian dollar falls, that directly raises the price Canadians pay for imports. Inflation may tick up immediately, albeit temporarily. At the same time, the lower dollar can boost export sales, and this impact on demand may work its way through ultimately to the inflation rate. The same analysis holds for movements in global commodity prices—they affect inflation directly right away, albeit temporarily, but can also have a more gradual impact via adjustments in the economy. When oil prices plunged in late 2014, we saw both types of shock hitting the Canadian economy simultaneously.
To sum up, in the absence of shocks coming from external factors, we can expect the trend of inflation to be sustainably around the midpoint of the target range when the economy is operating at full capacity and inflation expectations are well anchored on the target. That is why I have said that “home” for the economy is at the intersection of full capacity and 2 per cent inflation.
Recent Inflation Performance
As I said at the outset, inflation in a number of advanced economies has been running short of expectations recently. Consider a prime example, the United States. There, the Federal Reserve looks at core personal consumption expenditure (PCE)—an index of prices consumers pay for goods and services that is adjusted to remove the volatility caused by food and energy prices. Core PCE had climbed close to the Fed’s 2 per cent target around the end of 2016, following a prolonged period of weakness. However, it has slipped by 0.6 percentage points since the beginning of this year and now sits at 1.3 per cent on a year-over-year basis—all while economic growth has been steady and unemployment very low.
While this may raise doubts about our ability to explain the trend in inflation, when you dig a bit deeper you discover that there have been some special factors affecting US inflation. In particular, as mobile phone carriers began offering more unlimited-data plans, there was a significant drop in the cost of data. Staff at the Bank of Canada estimate that special factors such as these account for roughly two-thirds of the decline in US core inflation since the start of this year. The impact on inflation of these relative price changes should not persist—in other words, the underlying trend in US inflation is higher than it appears.
In many other advanced economies, core inflation was soft throughout 2016, even as excess supply was being absorbed. And unlike in the United States, this softness has come mainly from goods prices. Bank staff have identified exchange rate movements and low export prices in emerging-market trading partners as factors acting as a drag on core inflation in these economies.
Here in Canada, total inflation slowed over the first half of this year and has stayed in the lower half of the target range, even as our output gap has been closing rapidly. Both total and core inflation have firmed in the past couple of months. Still, since the middle of last year, an average shortfall in inflation of 0.7 percentage points has been unexplained by fundamental drivers. The factors behind this weakness include below-average food inflation, caused by a combination of abundant crop supplies and increased competition in the retail sector. Another special factor is the impact of the Ontario government’s reduction in electricity prices. Like the United States, these one-off factors account for roughly two-thirds of this year’s shortfall in total inflation in Canada.
The bottom line is that the fundamental drivers of inflation, along with some special factors we can identify, can explain the recent behaviour of inflation reasonably well. Certainly, the remaining shortfall is well within a reasonable margin of error, given that we are working with statistical relationships. Furthermore, the underlying trend in inflation is well within the target range we have committed to.
In short, we understand inflation well enough for policy purposes. Nevertheless, like all central banks, we would prefer to understand inflation perfectly and are not content to leave even a few tenths of a percentage point unexplained. We are working hard on this, and this research agenda is what I turn to now.
Searching for Other Inflation Drivers
Bank staff have examined 20 years’ worth of inflation data from 10 advanced economies and the euro area. They used statistical techniques to look for inflation factors that these countries might have in common. The first factor they found in common is fluctuations in food and energy prices across countries—as it turns out, these can explain almost half of the movements in total inflation. This makes sense, as food and energy prices are driven by global commodity prices. But we generally look through movements in food and energy prices when we are assessing the underlying trend of inflation. So, this common factor does not add much to our understanding.
Looking beyond commodity prices, Bank staff found evidence of a second factor common to all countries that can explain around 15 per cent of the remaining variation in core inflation. As it turns out, this factor is correlated with the recent softness in inflation shared by a number of countries, including Canada. While we do not yet know exactly what is driving it, several ideas have been advanced. Generally, these are related to either globalization or the digital economy. Let me review some of these ideas.
Globalization
Globalization could affect prices in a few ways. An obvious one is linked to the movement over the years toward more open trade. When companies are exposed to increased competition in global markets, they face pressure to cut costs and hold down prices. Similarly, consumers have access to a greater supply of imports from lower-cost, emerging-market producers, also dampening inflation. This impact became particularly important for manufactured goods early in the 2000s, after China joined the World Trade Organization, and it could still be at work.
A related idea is that global economic slack is becoming more important for domestic inflation, and domestic slack less so. Since the global economy has become more integrated, excess global supply might hold down inflation, particularly of some goods, regardless of the supply-demand balance in any individual economy. Companies need to worry about competition from other countries, not just local competitors, when deciding whether to raise prices.
The integration of companies in global value chains could also dampen inflation. Since various production stages can be moved to where costs are lowest, companies and their workers face additional competitive pressure to keep down prices and wages.
The digital economy
Another set of factors that may be acting as a drag on inflation is related to digitalization of the economy. This could affect inflation in at least three ways.
First, there is the direct impact of price changes for information and communications technology (ICT). Given how computer and home electronics prices have plunged over the years, it seems intuitive that lower ICT prices could push down inflation.
Second, digitalization has an impact on competition and market structure. In many sectors, digitalization has lowered barriers for the creation of new firms and increased competition. We have seen the disruptions caused by companies such as Uber and Airbnb. There is also the impact of e-commerce—the so-called Amazon effect—which can certainly affect how firms set prices. Think of how easy it is to check a competitor’s price on your phone while you are in a store, considering a purchase.
Third, digitalization can make business processes more efficient, improving productivity and leading to slower price increases. Indeed, productivity has increased more quickly than wages over the past year, roughly coinciding with the weaker inflation that we have seen.
However, Bank staff have yet to find rigorous empirical evidence to show that these factors add to our understanding of Canadian inflation beyond what the basic drivers tell us. To be clear, all I am saying is that the evidence does not pass the formal test for statistical significance. Common sense tells you that globalization and digitalization are affecting prices. Over time, as we accumulate data, we may be more able to identify and statistically quantify these effects.
That said, it seems that, so far at least, the cumulative impact of digitalization is not large enough to challenge our basic understanding of inflation dynamics. The Amazon effect appears to be smaller than the impact of the rise of big box stores about 20 years ago—the so-called “Walmart effect”—and even that was not large enough to force a rethink of the inflation process for policy purposes.
The Wage Phillips Curve
So, if we cannot prove statistically that globalization and digitalization are restraining inflation, what else could be going on? Let us take a deeper look at the linkage I mentioned between unemployment and wages, which economists refer to as the Wage Phillips Curve. The fact is, despite strong economic growth and plenty of job creation, wage growth has remained relatively low.
Possible explanations for this are not that hard to find. Even though Canada’s unemployment rate has returned to its 2007 lows, suggesting the labour market is at full employment, other indicators suggest that a fair amount of slack remains. In particular, youth participation rates still seem low, and a lot of people are still working part-time when they would prefer full-time.
As well, we know that many workers who lost high-paying jobs during the oil price collapse in 2014–15 may be moving to employment in other, lower-paying sectors. Similarly, younger workers may have lower wages than the retiring older workers that they are replacing. And certainly, the perception that companies or workers are facing increased foreign competition could lead to slower wage increases. The fact that wage growth has been slower among goods industries than services—which can be more easily insulated from globalization—supports this idea.
Another conjecture I will offer, which is difficult to test empirically, is that prolonged very low interest rates have lowered the relative cost of capital equipment compared with the cost of labour. Firms may be restructuring their operations, making greater use of capital equipment and thereby limiting the scope for wage increases. Some can do this without even buying equipment, instead buying capital services in the cloud. Even the threat of increased automation may be sufficient to keep wage rises in check. This conjecture is worth exploring in more depth.
Given all these potential factors that may be holding back wage inflation, it is simply premature to conclude that there is something amiss in the traditional inflation process. At a minimum, we need to monitor measures of slack in the labour market to see how it is being absorbed. Over time, this can be expected to lead to a pickup in wage growth, which in turn will feed its way through to inflation.
In short, we believe that there is still a link between labour market slack and wages, just as there is still a link between inflation and the balance of total supply and demand. What this means is that the closer we get to full output and employment, the greater the risk that inflation pressures will appear.
This is just one of the many risks that the Bank will need to manage as we conduct monetary policy. As we said last month, while the economy is likely to require less monetary stimulus over time, we will be cautious in making future adjustments to our policy rate. In particular, the Bank will be guided by incoming data to assess the evolution of economic capacity, the dynamics of both wage growth and inflation, and the sensitivity of the economy to higher interest rates. A lot of pieces need to fall into place before we can be certain that the economy has made it all the way home.
Conclusion
Allow me to conclude. The popular perception that inflation has become inexplicable has been greatly exaggerated. In part, this perception reflects a misunderstanding of the accuracy with which economists can predict inflation, and a misunderstanding of the precision with which central banks can control it. Fundamentally, we know how inflation works—the laws of supply and demand have not been repealed.
Yes, Canada’s inflation rate has repeatedly fallen short of our 2 per cent target in the past few years. For the most part, this may be explained by the drag related to the surprising persistence of excess capacity in the economy, and the fact that inflation reacts to excess demand after a lag. This drag can persist until all slack in the labour market is absorbed as firms build additional capacity through higher investment with the economy approaching potential. Beyond these factors, there have been repeated relative price fluctuations—in electricity prices and from increased competition in food retailing, for example—which have temporary effects on inflation and should be looked through. Moreover, there may also be some drag on inflation from globalization and digitalization. When we put it all together, we see that inflation has been behaving well within the normal zone of statistical and policy tolerance.
I am not claiming that our understanding of inflation is perfect, complete and unchanging. Far from it. We will continue to look closely at forces such as globalization and digitalization so that we can better understand how they are influencing the inflation process.
There are always uncertainties in economics. That is why forecasts are best thought of as ranges, rather than points, and why our inflation-control framework is based on a target band. The bottom line is that inflation targeting has worked, through good times and bad, for more than 25 years. It continues to work today. And Canadians can be confident that it will continue to work for years to come.
FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/remarks-071117.pdf
BANK OF CANADA. November 7, 2017. Fundamental forces continue to drive inflation as economy evolves, Bank of Canada Governor Poloz says. Montréal, Quebec
MONTRÉAL, QUEBEC—The fundamental forces that have always driven inflation will continue to do so, even as the global economy evolves, Bank of Canada Governor Stephen S. Poloz said today.
In a speech to CFA Montréal and the Montreal Council on Foreign Relations, Governor Poloz challenged the idea that recent softness in inflation in many advanced economies brings into question the effectiveness of inflation targets for central banks. “Fundamentally, we know how inflation works,” the Governor said. “The laws of supply and demand have not been repealed.”
Inflation has underperformed forecasts mostly because the Great Recession and its aftermath left many economies with more excess supply than originally believed, and because inflation responds to excess demand with a lag. As well, country-specific factors and transitory relative price movements have served to restrain inflation in recent months, Governor Poloz said.
The fundamental drivers of inflation, along with identifiable short-term factors, can explain inflation to a degree that is well within normal statistical tolerance, the Governor said. He added that because of the uncertainties inherent in the inflation process, it is not realistic to expect central banks to control inflation “down to tenths of a percentage point.”
Some have pointed to slow wage growth in the presence of falling unemployment as evidence that fundamental factors are having less influence on inflation. However, the Governor pointed to several reasons why wage growth has been slow, including continued slack in the labour market and changing demographics.
Governor Poloz also discussed potential channels that might affect inflation as the economy evolves in response to the forces of globalization and digitalization. While research conducted by Bank of Canada staff shows that these forces do not yet add materially to the Bank’s understanding of inflation beyond what the fundamental drivers of inflation can explain, that does not mean they are not present.
“The evidence does not pass the formal test for statistical significance,” Governor Poloz said. However, “common sense tells you that globalization and digitalization are affecting prices.”
The recent softness in inflation provides no reason to question the usefulness of inflation targeting, the Governor concluded. “The bottom line is that inflation targeting has worked, through good times and bad, for more than 25 years. It continues to work today. And Canadians can be confident that it will continue to work for years to come.”
FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/press_071117.pdf
The Globe and Mail. 8 Nov 2017. Persistently low inflation not a mystery, Poloz says. Inflation: It takes up to two years for ‘full impact’ of rate hikes to occur, Poloz says
BARRIE McKENNA
Inflation hasn’t mysteriously vanished, it is just proving slow to materialize as the global economy grapples with the aftershocks of the Great Recession, Bank of Canada Governor Stephen Poloz says.
“The popular perception that inflation has become inexplicable has been greatly exaggerated,” Mr. Poloz told a meeting of financial analysts in Montreal on Tuesday.
People expect too much of central banks in being able to accurately predict and control inflation down to “tenths of a percentage point,” he added.
“Inflation targeting is an imprecise business,” he said.
Mr. Poloz nonetheless insisted that the bank’s policy of targeting 2-percent inflation is working just fine.
“The laws of supply and demand have not been repealed,” he said.
Prices have remained stubbornly below the bank’s target for most of Mr. Poloz’s tenure at the central bank, which began in 2013. And now, with unemployment back to prerecession levels and the economy operating at full capacity, inflation remains subdued, running at a 1.6per-cent annual rate in September.
Indeed, inflation is the missing piece in the central bank’s desire to raise its key interest rate to more normal levels.
The Bank of Canada has hiked its overnight rate twice this year – to 1 per cent – reversing two quarter-percentage-point cuts it made in 2015 as the oil price shock rattled the Canadian economy.
“Governor Poloz walked a tricky line between defending the rate hikes he’s already delivered as reasonable given the inflation outlook, while still acknowledging enough of a grey area in the forecast to be cautious about delivering the next move,” Canadian Imperial Bank of Commerce chief economist Avery Shenfeld said in a research note.
“He concedes that wage inflation hasn’t picked up in the usual way, but isn’t convinced that it’s not coming.”
Mr. Poloz said last month that the bank intends to move cautiously on further rate increases as it looks for signs that wages and inflation are finally perking up.
Investors are now betting that the Bank of Canada will not hike again in 2017 and will move slowly next year.
“A lot of pieces need to fall into place before we can be certain that the economy has made it all the way home,” Mr. Poloz said on Tuesday.
“Home,” he explained, is “at the intersection of full capacity and 2-per-cent inflation.”
Persistently low inflation is no mystery, Mr. Poloz insisted. In Canada’s case, it’s the result of the “surprising persistence of excess capacity in the economy and the fact that inflation reacts to excess demand with a lag.”
He pointed out that it takes up to two years for the central bank benchmark interest rate to have its “full impact” on inflation.
Mr. Poloz also said several temporary factors are keeping prices low, including low food inflation caused by intense competition and healthy crops as well as Ontario’s lowering of electricity rates.
The Bank of Canada has investigated other possible sources of low inflation, including digitalization and globalization, and China’s entry into the World Trade Organization. But so far, the bank has found no evidence that these factors are statistically significant.
And yet Mr. Poloz acknowledged that “common sense tells you that globalization and digitalization are affecting prices.”
He pointed out that companies operating in global markets face pressure to cut costs and hold down prices. As well, digitalization has lowered the cost of technology and made it easier to start new companies.
“When we put it all together, we see that inflation has been behaving well within the normal zone of statistical and policy tolerance,” he said.
POPULATION - 2017: 36,708,083
StatCan. 2017-11-08. Canada's population estimates: Age, sex and marital status, July 1, 2017
Population estimates by marital status, legal marital status, age and sex for Canada, the provinces and territories, as of July 1, 2017, are now available. Revised estimates as of July 1, for the years 2013 to 2016, are also available.
TABLE: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=0510042&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
StatCan. 2017-11-08. Canada's population estimates: Census families, July 1, 2017
Estimates of the number of census families for Canada, the provinces and territories, as of July 1, 2017, are now available. These estimates are broken down by family structure (couple or lone-parent). Revised estimates as of July 1, for the years 2013 to 2016, are also available.
TABLE: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=0510055&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
AVIATION
The Globe and Mail. 8 Nov 2017. Innovation keeps Canadian companies ahead in competitive
“It is collaborative, globally integrated, and a best-inclass creator of high-value jobs and opportunity for Canadians all across the country. As government implements its plan to foster prosperity for Canada’s middle class through innovative businesses and sectors, the aerospace industry can and will lead the way.” Jim Quick is president and CEO of Aerospace Industries Association of Canada
Canada is maintaining its place as one of the world’s leading aerospace nations because it is globally integrated, export oriented and innovation driven, according to Navdeep Bains, the federal minister of Innovation, Science and Economic Development.
Speaking as leader of a 420-member Canadian business and government delegation to the 2017 International Paris Air Show, Mr. Bains said global aerospace companies were being drawn to invest in Canada because of the talents of the highly skilled men and women who work in this country’s aerospace sector.
“They also invest in Canada because our government partners with the sector to develop next-generation technologies that enable this country’s aerospace companies to maintain their global leadership in innovation. That’s how innovation leads to better jobs and opportunities for Canadians,” he added.
The extent of the aerospace sector’s contribution to the economy is highlighted in the annual State of Canada’s Aerospace Industry Report published by the Aerospace Industries Association of Canada (AIAC) and Innovation, Science and Economic Development Canada.
According to the AIAC, the 2017 report provides continued proof that the aerospace industry is Canada’s most innovative manufacturing sector, leading manufacturers in R&D investment and posting nearly 30 per cent of the sector’s R&D investments in 2016.
KEY FINDINGS INCLUDE:
- Canada’s aerospace industry contributed nearly $28-billion to GDP and 208,000 jobs to the Canadian economy in 2016;
- Canadian aerospace manufacturing was the number one R&D investor across manufacturing industries, was six times more R&D intensive than the manufacturing sector average, and generated nearly 30 per cent of all Canadian manufacturing R&D investments in 2016;
- Canada ranks in the top three globally for the production of civil aircraft, helicopters, engines and flight simulators;
- Canadian aerospace manufacturers develop new technologies at twice the rate of the Canadian manufacturing average, and they recruit significantly more employees for innovation-related roles. Commenting on the report, AIAC president and CEO Jim Quick said the aerospace industry is the poster-child for innovation leadership in Canada.
“It is collaborative, globally integrated, and a best-in-class creator of high-value jobs and opportunity for Canadians all across the country. As government implements its plan to foster prosperity for Canada’s middle class through innovative businesses and sectors, the aerospace industry can and will lead the way,” he added.
While the United States is the single largest market for Canada’s aerospace and defence companies, accounting for well over half of the sector’s annual exports, according to Export Development Canada, there are growing ties between the European and Canadian sectors.
For example, earlier this year, Aéro Montréal, Quebec’s aerospace cluster, signed a mutual collaboration agreement with the European Aerospace Cluster Partnership (EACP) and Hamburg Aviation.
The agreement will give Québec companies access to a network of 40 European aerospace clusters representing 4,300 companies and 430 research centres in 15 different countries, says Suzanne Benoît, president of Aéro Montréal.
“This is an extraordinary opportunity for us to identify the needs of companies in the other clusters and to enable our Quebec companies to offer them value-added products and services,” according to Ms. Benoît.
She adds that Aéro Montréal’s vision is to become a global benchmark in aerospace.
“We are working to develop major agreements such as this one to further promote and facilitate the internationalization of our SMEs. The objective is to foster closer ties between our SMEs and their customers abroad. We also want to encourage mergers and acquisitions so that our companies can attain a critical mass and offer competitive products and services in the global aerospace market.”
FINANCE
Department of Finance Canada. November 7, 2017. Government Strengthens Canada's International Foreign Reserves by Issuing Global Bond
Ottawa, Ontario – The long-term financial security of Canadians is a cornerstone of the Government of Canada's efforts to help protect the middle class and those working hard to join it. Today, the Government of Canada successfully issued a US$3 billion global bond.
Issuing a global bond provides funds to supplement and diversify Canada's foreign exchange reserves for the benefit of Canada's financial system. Foreign exchange reserves provide a general source of prudential liquidity and support the promotion of orderly conditions for the Canadian dollar in foreign exchange markets.
This is the Government's first US-dollar bond issue since its US$3.5 billion bond issued in March 2015. The investor base for the 5-year bond issue includes a wide range of central banks, other official institutions and foreign-based investment funds across a diverse geographical area.
The issuance of a global bond is in line with the commitment that the Government made in Budget 2017 to maintain liquid foreign reserves at or above 3 per cent of nominal gross domestic product.
Quick Facts
- Today, the Government issued a US$3 billion global bond that matures on November 15, 2022.
- The issuance received strong demand from investors in North America, Europe and Asia. The deal was met by high investor demand as indicated by an order book that was in excess of US$6 billion. The demand enabled Canada to achieve best-in-class pricing relative to US Treasury securities.
- This reflects Canada's strong economic and sound fiscal management, which supports the country's triple-A credit rating.
- The bond transaction achieved all of the Government's objectives, including the provision of cost-effective and diversified funding for the foreign exchange reserves held in the Exchange Fund Account.
FULL DOCUMENT: http://www.fin.gc.ca/n17/17-112-eng.asp
MINING
The Globe and Mail. 8 Nov 2017. Stay tuned to Chinese growth to avoid a metals bust
SCOTT BARLOW, Columnist
In the short term, everything looks rosy for investors in the mining sectors but there are darker clouds building on the horizon where China is concerned.
Base metals may look shiny to investors right now, but forecasts for China’s economy suggest the sector may soon start to rust.
There are times when market action isn’t tough to figure out and the recent rally in base metals is one of those times. For all the talk of the lithium, nickel and magnesium that would be needed during a surge in electric vehicles, broader metals prices continue to be driven primarily by Chinese imports and also by rising global manufacturing activity.
The catch is that forecasts for the Chinese economy imply the rally could be short-lived.
China’s dominance in global commodity markets is highlighted by the fact the country consumes half of the global supply of copper and coal produced each year. The top chart, comparing year-over-year growth in total Chinese imports with the yearover-year change in the S&P/GSCI Industrial Metals Index, shows the dramatic effect Chinese demand has on metals prices.
The two lines on the chart have tracked closely since early 2009, when a gargantuan surge in China’s money supply and credit growth (not shown on chart) led to a surge in infrastructure development and imports. With a short delay, metals prices followed closely behind.
More recently, a continuing recovery in China’s import growth that began in January, 2016, has been accompanied by an improvement in year-over-year metals prices from a 20-per-cent decline to a 31-per-cent appreciation.
The rally in metals prices has also been supported by rising global manufacturing activity, as the second chart underscores. The JPMorgan Global PMI Manufacturing Index – an index derived from surveys of manufacturing companies where a reading of 50 indicates no change in activity – has climbed from 50 to 53.5. Manufacturers purchase more resources the busier they get, supporting metals demand and prices.
In the short term, everything looks rosy for investors in the mining sectors but there are darker clouds building on the horizon where China is concerned.
The consensus economist forecasts point to solid import growth of 14 per cent for 2017 but a much slower pace for 2018 and 2019. Chinese leadership is attempting to reorient the economy’s growth drivers away from its credit-related excesses and toward consumer spending, and slower gross domestic product and import growth is expected as a result. China’s imports growth is expected to fall to 4.5 per cent next year and 3.0 per cent in 2019, according to Bloomberg data. Our first chart suggests that this slowdown will be accompanied with a much slower rise in metals prices.
Here at the Report on Business, we know through website traffic statistics that Canadian investors are increasingly uninterested in the Chinese economy. It remains the case, however, that energy and materials stocks account for more than 30 per cent of the S&P/TSX composite index, and the commodity prices that determine their profitability are, to a significant extent, dependent on Chinese demand.
Domestic investors, particularly those focused on resource, should frequently check in on China’s growth prospects to limit risk in their portfolios.
Scott Barlow, Globe Investor’s inhouse market strategist, writes exclusively for our subscribers at Inside the Market online. Subscribe to Globe Unlimited at globeandmail.com/globeunlimited.
ENERGY
The Globe and Mail. Reuters. 8 Nov 2017. Crude demand to fall short of expectations, OPEC forecasts
ALEX LAWLER
Global demand for OPEC’s crude will rise in the next two years more slowly than expected, the group forecast, as a recovery in prices resulting from an OPEC-led supply cut stimulates renewed output growth from nonmembers.
The Organization of the Petroleum Exporting Countries also said in its 2017 World Oil Outlook that rapid adoption of electric vehicles could cause oil demand to plateau in the second half of the 2030s, denting OPEC’s longer-term prospects.
OPEC and rivals including Russia have been cutting output in 2017 to get rid of a glut. A resulting price rise is spurring a rebound in non-OPEC supply, the report shows, but OPEC still expects its market share to increase further down the line.
“It is evident that this major commitment to production adjustments has been central to the rebalancing process that the market has undergone this year,” OPEC Secretary-General Mohammad Barkindo wrote in a foreword to the report.
“The long-term focus for additional liquids demand remains on OPEC.”
Demand for OPEC crude will reach 33.10 million barrels a day (b/d) in 2019, the report said. While up from 32.70 million b/d in 2016, the 2019 figure is down from 33.70 million b/d forecast in last year’s report.
OPEC raised its forecast for the supply of tight oil, which includes U.S. shale. It said a rise in prices in 2017, plus sustained demand growth, had resulted in a higher forecast for supplies outside OPEC.
“The medium-term outlook for non-OPEC liquids growth has changed quite considerably,” OPEC said in the report, referring to its 2016 forecasts. “Most strikingly, U.S. tight oil production has exceeded previous growth expectations.”
Oil prices hit their highest since July, 2015, on Monday, trading above $62 (U.S.) a barrel.
Global output of tight oil will reach 7.0 million b/d by 2020 and 9.22 million b/d in 2030, the report said, as Argentina and Russia join North America as producers.
Years of high prices helped boost non-OPEC supply and make nonconventional oil, such as shale, viable. This exacerbated a glut, leading to the 2014 price collapse that the OPEC-led cut was designed to tackle.
OPEC also increased its mediumterm world oil demand forecast, expecting oil use to reach 102.3 million b/d by 2022 – 2.24 million b/d more than in last year’s report.
Demand is seen at 111.1 million b/d in 2040, up from 109.4 million b/d expected last year, with OPEC’s share of the world oil market expected to rise to 46 per cent from 40 per cent in 2016.
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