CANADA ECONOMICS

VENEZUELA

THE GLOBE AND MAIL. NOVEMBER 16, 2017. EXCLUSIVE. Phone-tapping, fear and threats: Why an ex-Venezuelan judge is seeking refuge in Canada
MICHELLE ZILIO


Ralenis Tovar, a former criminal judge in Venezuela, is photographed on Nov 15 2017.
FRED LUM/THE GLOBE AND MAIL

OTTAWA - A former Venezuelan judge who says she was forced under threat to sign arrest warrants for President Nicolas Maduro's political opponents is seeking refugee protection in Canada.

In an exclusive interview with The Globe and Mail, Ralenis Tovar said she and her family fled Venezuela on July 28, claiming refugee status when they landed at Toronto's Pearson International Airport.

After more than three years of what she described as threats, stalking and a kidnapping attempt by members of the Maduro regime, Ms. Tovar said her fear peaked in June when another judge involved in the sentencing of opposition leader Leopoldo Lopez was murdered. Ms. Tovar, who claims she was once forced to sign an arrest warrant for Mr. Lopez, knew it was time to leave.

"Nelson Moncada was found murdered and [he] was involved in Leopoldo Lopez's case too. I felt that it might be the government who, in one way or another, was trying to get rid of people who were involved in that case," Ms. Tovar said in Spanish through her lawyer Victor Korsun, who translated for her.

Ms. Tovar, 47, fled with her 13-year-old daughter and husband. They are currently living in a Toronto hotel until they can move into an apartment in December. In the meantime, they are awaiting a hearing with the Immigration and Refugee Board.

The Caracas-born lawyer left behind friends, family and a 17-year career as a judge in the Venezuelan capital. She says she started to notice the judiciary losing its independence in 2009, but things intensified in 2013 when Mr. Maduro became President.

"They started issuing arrest warrants or laying charges upon people that had nothing to do with crime, but were just political actors."

On her way home from work on Feb. 12, 2014, Ms. Tovar received a series of phone calls from an unknown number. Assuming it was an inmate, she didn't answer. Then the president of Venezuela's Supreme Court phoned and told her to pick up the calls. She did and was told to head back to the office.

Ms. Tovar said the court was surrounded by the National Guard and military intelligence officers when she arrived. She was greeted by four public prosecutors, who guarded her office's door as she sat down.

She was given a folder with three arrest warrants inside. She said she didn't recognize the first two names, but was shocked when she read the name on the third warrant: Leopoldo Lopez.

"I felt petrified because internally I knew what was the purpose of that warrant, which was to silence a political leader who was an obstacle for President Maduro," Ms. Tovar said.

Given that it was 2 a.m., Ms. Tovar asked the prosecutors if she could review the warrant the next day. She said they laughed sarcastically and told her that if she didn't sign it, she would end up like Maria Lourdes Afiuni, a Venezuelan judge who was allegedly raped in prison in 2010.

Terrified, Ms. Rovar signed Mr. Lopez's arrest warrant.

Ms. Tovar said the intimidation continued after that night: Her phones were tapped, she was followed and was forced to sign two more arrest warrants. In June 2014, she said, a group of people showed up in a black car at her daughter's school saying they were there to pick her up. When the individuals realized her daughter was taking a long time to come out of the school, they left. Ms. Tovar is convinced they were Maduro agents trying to kidnap her daughter.

Ms. Tovar resigned on July 2, 2015, and tried to open her own practice. However, she was unable to retain clients, who she says were told by judges that their cases would not succeed if she represented them.

Running out of options in Venezuela, she attended an information session in Caracas about immigration to Canada, hosted by Mr. Korsun's immigration firm. They devised a plan for her and her family to flee to Canada. When Mr. Moncada was murdered in June, she immediately applied for Canadian visitor visas for her family and got out of Venezuela.

The Venezuelan embassy in Ottawa did not respond to a request for comment about Ms. Tovar's claims.

Since arriving in Toronto, Ms. Tovar has testified via video conference at the Organization of American States's (OAS) hearings on whether the situation in Venezuela should be referred to the International Criminal Court. Irwin Cotler, former Liberal MP and renowned international human-rights lawyer, sat on the OAS expert panel that heard Ms. Tovar's testimony on Oct. 16. He said her testimony demonstrates the "culture of fear" in Venezuela.

"The fear is pervasive and persistent and what we're seeing in Venezuela is really a culture of fear as part of a larger culture of oppression," he said.

Mr. Cotler also represents Mr. Lopez, who is now under house arrest in Venezuela. He has worked to bring Mr. Lopez's plight, as well as that of the Venezuelan people, to the attention of Prime Minister Justin Trudeau. Earlier this year, he helped arrange a meeting between Mr. Trudeau and Mr. Lopez's wife Lilian Tintori in Ottawa.

Venezuela's descent into political and economic crisis has accelerated since March, when Mr. Maduro attempted to strip the opposition-dominated Congress of its powers. Protesters took to the streets, demanding that Mr. Maduro step down and call new elections; at least 125 died in the protests and thousands have been wounded or jailed.

Meanwhile, the country is facing triple-digit inflation and desperate shortages of food and medicine. Canadian Foreign Affairs Minister Chrystia Freeland has expressed concern that the turmoil in Venezuela will spark a refugee crisis in South America.

Ms. Freeland has issued numerous statements condemning the "undemocratic" actions by the Maduro regime, warning that the country is "sliding into a dictatorship." Last month, Canada sanctioned 19 Venezuelans, including Mr. Maduro, under a new Magnitsky-style law that allows the government to target human-rights abusers.

AVIATION

The Globe and Mail. 16 Nov 2017. EU sides with Bombardier in trade fight against the United States. Bombardier: Trade battle with U.S. now has widening implications.
NICOLAS VAN PRAET

The European Union is backing Britain in its trade dispute with the United States over Bombardier Inc.’s
C Series airliner, saying preliminary duties of 300 per cent levied by U.S. authorities on the high-tech plane have no basis in international law.
The EU fired a warning shot this week, saying in a Nov. 14 brief to the U.S. Department of Commerce that it considers the preliminary duties imposed on the C Series to be unwarranted. It also took issue with the Commerce probe itself.
“This investigation shows significant shortcomings, both regarding the findings as well as concerning the methodologies applied,” the European Commission, the EU’s executive arm, said in the brief. The commission said it doubts that the procedures used to establish the duties are compatible with World Trade Organization rules.
The involvement by the EU widens the geographic scope of the trade battle and raises the stakes as the continent’s 28 member states line up behind Britain and Canada, putting the United States on the defensive just as talks on renegotiating the North American free-trade agreement resume in Mexico City.
Boeing Co., whose complaint against Bombardier’s marquee airplane triggered anti-dumping and countervailing duty investigations by the Department of Commerce, has repeatedly tried to characterize the dispute as one pitting two companies against each other. But as Europe wades into the fray, it’s clear this is now a multination battle with widening implications. Brazil is not directly involved but sides with Boeing, alleging state subsidies allowed Bombardier to survive and offer its aircraft below production costs to the detriment of its home-grown champion Embraer.
Boeing filed a trade complaint against Bombardier last April, alleging the Canadian plane maker used unfair government subsidies to clinch an important contract for 75 CS 100 planes to Atlanta-based Delta Air Lines at “absurdly low” sale prices. 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 by the U.S. International Trade Commission early next year.

The way in which the U.S. Commerce Department slapped 300 per cent in duties on the Bombardier C Series aircraft has been called ‘a flagrant violation of the basic rules of due process’ by the European Union.

Bombardier denies any wrongdoing and says Boeing cannot prove it was harmed by the Canadian company’s actions because it did not offer Delta any planes of its own. Canada, Britain and Quebec, which all provided support to Bombardier to get the C Series to market, say their investments adhere to international rules.
“Boeing is underestimating what they are tackling. It’s not just the company but countries” that they’re targeting, Bombardier chief executive officer Alain Bellemare said at an investors conference in Boston Tuesday. “Unfortunately, I think they’re taking advantage of a [political] context that’s favourable to them.”
Last month, Prime Minister Justin Trudeau said he warned U.S. President Donald Trump that the trade dispute was blocking “any military procurements from Boeing.” It has been the standard line in Ottawa for months that Boeing, having failed to act as a trusted or valued partner, has effectively been shut out of any new federal contracts.
The preliminary duties against Bombardier have also caused outrage in Britain, where the Montrealbased company is one of the biggest private-sector employers in Northern Ireland. About 4,000 Bombardier workers in East Belfast build wings for the C Series as well as other aerospace components.
Europe’s backing is awkward for Britain, highlighting the potential advantages of belonging to a big trading bloc as the country negotiates an exit from the EU. An unnamed EU official told the Financial Times newspaper that Brussels intervened in the case to defend both the Belfast plant and aerospace suppliers across Europe that stood to be affected by the U.S. crackdown.
Europe’s stance would pave the way for EU action at the WTO level if the United States presses ahead and finalizes import duties against the C Series, the Financial Times said. Canada would also examine various avenues of appeal.
Bombardier last month announced a deal to cede majority control of the C Series program to Europe’s Airbus Group SE for no upfront financial consideration. The partners plan to build C Series planes for U.S. customers at Airbus’s existing plant in Mobile, Ala., to bypass any duties.
The European Union, in its analysis of the Commerce Department’s preliminary determination rulings, contested the findings on multiple grounds.
In the anti-dumping part of the case, the EU pointed out that no C Series airplane has been built for a U.S. customer yet, and none has been imported into the United States. Therefore, there has been no dumping under WTO rules. Further, it said Commerce asked Bombardier to provide sales information when no U.S. sales have taken place.
“It is a flagrant violation of the basic rules of due process if an administration requires a party to submit data on something that does not exist and that, as a consequence, it is unable to provide,” the EU said. “Bombardier simply did not have production and sales data due to the absence of production and sales.”
Bombardier (BBD.B) Close: $3.07, down 4¢

The Globe and Mail. Reuters. 16 Nov 2017. Airbus lands record order as aerospace investor increases bet on budget carriers. Preliminary deal with Indigo Partners’ Bill Franke includes 430 planes worth up to $50-billion
TIM HEPHER
ALEXANDER CORNWELL

I think we could buy several countries’ GDP with [the value of the Airbus order]. Hopefully, I can do better than that. Bill Franke Co-founder and managing partner of Indigo Partners, a private-equity firm focused on U.S. budget airlines

Potential investors tour the interior of an Airbus A330neo mockup at the Dubai Airshow on Wednesday. Airbus landed its largest-ever deal with U.S. airline investor Indigo Partners during the event.
Airbus SE hailed its biggest airliner deal yet on Wednesday with an umbrella agreement to sell 430 planes worth up to $50-billion (U.S.) to U.S. budget airlines investor Bill Franke.
The preliminary deal for A320neofamily narrow-body jets was signed at the Dubai Airshow and offers a major boost to Airbus, which has lagged arch-rival Boeing Co. in orders this year.
It also ensures veteran sales chief John Leahy retires on a high in the coming months.
Boeing immediately hit back with a provisional agreement to sell 175 planes to budget airline flydubai. Including options to buy a further 50 planes, that deal could be worth $27-billion at list prices.
The deal between Airbus and Mr. Franke’s Indigo Partners is billed as the industry’s largest by number of aircraft.
For Airbus, the $49.5-billion listprice value is seen as a record, although it is eclipsed by a $76-billion Emirates deal with Boeing in 2013.
“I think we could buy several countries’ GDP with it,” said Mr. Franke, a gentlemanly but hardnosed negotiator who is said to have won unusually steep discounts to advertised prices.
“Hopefully, I can do better than that,” he added.
The package technically covers four separate agreements jointly negotiated through Mr. Franke as a common investor, and Airbus billed the deal only as a record “announcement.”
Mr. Franke did not take part in a signing by airline chiefs.
A person close to the talks said that such “wholesale” aircraft deals could become more common as more private equity and new sources of funding come into the airline business.
“Herding cats”
Indigo plans to supply the narrowbody jets to four airlines in which it has stakes: U.S. carrier Frontier Airlines, Mexico’s Volaris, Chilean JetSMART and Hungary’s Wizz Air.
Ultralow-cost carriers such as these have rewritten the industry rule book by combining bargain fares with optional services and upgrades for passengers prepared to pay extra.
Mr. Franke went to Airbus several months ago with a proposal to pool the needs of his airlines, setting in train a complex negotiation that one observer described as “herding cats.”
Airbus, shares of which rose by 2.4 per cent on Wednesday, said it expects to finalize the transaction directly with the airlines in the coming weeks as it tries to close a 250-plane deficit in its order race with Boeing. Mr. Franke described this as an aggressive, but achievable, target.
For now, the headline total of almost 700 jets covered by air-show announcements fails to change the order battle as barely 30 of the deals so far represent finalized contracts.
The framework deal, along with flydubai’s deal for Boeing’s 737 MAX narrow-body jets, underscores how airlines are taking advantage of slowing global demand to negotiate competitive deals to add to their fleets.
Swan song
The Franke deal also marks a dramatic swan song for Airbus sales chief Mr. Leahy, who is due to retire in the coming months from a role he has held since 1994. The 67-yearold has overseen the sale of jets worth $1.7-trillion at list prices and helped to lift Airbus’s market share from a mere 18 per cent to stand roughly at par with Boeing. The two rivals account for the vast majority of the market.
This year, however, Airbus’s share of the order tally had dropped to 35 per cent before the Dubai show, with a rejuvenated Boeing management having made advances in Singapore and elsewhere.
The blockbuster finale to the main part of the Nov. 12-16 show lifted a despondent mood that had settled over the Airbus chalet when a deal for A380 superjumbos collapsed on day one.
“I think both sides will take stock and see if something can be agreed later this year,” an industry source told Reuters.

REUTERS. NOVEMBER 15, 2017. Boeing in 175 plane deal with budget carrier flydubai
Alexander Cornwell, Tim Hepher

DUBAI (Reuters) - Boeing Co. (BA.N) reached a preliminary deal for 175 of its 737 MAX jets with flydubai on Wednesday, potentially committing the budget airline’s fleet to the U.S. planemaker for another decade.

The Dubai-based carrier wants more than 50 of Boeing’s largest narrowbody jet, the 737-10, as well as to-be-determined numbers of its 737-9s and 737-8s, Boeing said in a statement at the Dubai Airshow.

Reuters had reported that Boeing was close to reaching a deal with flydubai for 175 737 MAX jets.

Flydubai Chairman Sheikh Ahmed bin Saeed al-Maktoum told a news conference the provisional deal was struck Tuesday night.

It is flydubai’s third aircraft deal. It agreed to buy 75 737-8 MAX aircraft at the Dubai Airshow four years ago.

“We try to grow as fast as we want,” Chief Executive Ghaith al-Ghaith told reporters.

Delivery of flydubai’s 175 planes will begin in 2019 and be spread across 10 years with some overlap with the delivery of its 2013 order, al-Ghaith said.

The current fleet of flydubai, which started flights in 2009, is all Boeing. It currently only operates 737-8s.

The provisional deal is worth $27 billion, including purchasing options for an additional 50 planes.

Al-Ghaith told Reuters the airline was interested in the new mid-sized jet that Boeing is studying whether to develop, but that it had not been discussed during the 737 negotiations.

Boeing is looking at potentially filling a market gap between narrow and widebody jets with a new aircraft that could seat 220 to 270 passengers.

Boeing Commercial Airplanes Chief Executive Kevin McAllister told the news conference that flydubai’s 737 commitment would be good for jobs in the United States and in the Middle East.

Gulf customers are keen to stress the importance of their orders for U.S. jobs as they are locked in a trade dispute with three major American carriers.

Sheikh Ahmed said the airline had picked the 737s after also looking at Airbus’ (AIR.PA) similar-sized A320s, echoing comments he made this week in his role as Emirates [EMIRA.UL] chairman when he said the 787 had been chosen over the Airbus A350.

Dubai-based Emirates this week committed to buying 40 of Boeing’s 787 Dreamliner.

Emirates and flydubai are both owned by the government of Dubai, which has pushed the two airlines to work more closely.

McAllister said the flydubai and Emirates deals were negotiated separately.

Also on Wednesday, Airbus reached a preliminary deal for a record 430 of its A320neo-family jets from U.S. investor Bill Franke’s Indigo Partners.

Editing by Jason Neely and Mark Potter

NAFTA

Global Affairs Canada. November 15, 2017. Fifth round of NAFTA negotiations in Mexico City  
Statements

Ottawa, Ontario - The NAFTA Chief Negotiators confirmed today that although the fifth round of NAFTA negotiations will formally begin on November 17, 2017, some negotiating groups will begin meeting on November 15. Nearly 30 negotiating groups will be meeting during the fifth round, which will conclude on November 21.

The three NAFTA ministers—the Honourable Chrystia Freeland, Minister of Foreign Affairs, Ildefonso Guajardo Villarreal, Mexico’s Secretary of Economy, and Ambassador Robert E. Lighthizer, United States Trade Representative—agreed at the end of round four to allow more space between rounds in order to provide negotiators with enough time to analyze the proposals that all three countries have tabled so far and to conduct internal consultations.

In addition, the NAFTA ministers met separately at the recent Asia Pacific Economic Cooperation (APEC) Leaders Meeting in Da Nang, Vietnam, and instructed the NAFTA Chief Negotiators to focus on advancing discussions on tabled proposals as much as possible. Given the substantive discussions held between the ministers at APEC, the ministers agreed not to attend the fifth round so negotiators can continue to make important progress on key chapters advanced in round four.

The Chief Negotiators from Mexico, the United States and Canada will be in constant communication with their respective ministers and will report on the progress reached in round five.

The Globe and Mail. Bloomberg. 16 Nov 2017. U.S. auto threats leave some Canadian firms more exposed than others
LILY JAMALI

Of the U.S. demands expected to complicate the next round of NAFTA negotiations this week in Mexico City, here’s one of the more contentious: an American proposal that half of all parts and vehicles that cross borders under the pact be made in the United States.
While that might sound onerous for auto-parts manufacturers in Canada, some companies aren’t far off from that threshold, according to data compiled by Bloomberg. Canada’s largest auto-parts maker
Magna International Inc., based in Aurora, Ont., is among the most protected with about 48 per cent of the company’s North American plant and equipment located in the United States already, the data show.
Magna is the top supplier to General Motors Co., Ford Motor Co., and Fiat Chrysler Automobiles NV. Martinrea International Inc. surged almost 10 per cent on Wednesday, the biggest jump in a year, after the Vaughan, Ont.-based manufacturer beat earnings estimates and commented extensively on NAFTA. About 41 per cent of Martinrea’s North American fixed assets are in the United States, according to Bloomberg data.
Executive chairman and co-founder Robert Wildeboer said in a conference call on Wednesday that “our relative footprint is very well-positioned, even if the rules of origin rules were tightened or even if there was no NAFTA.”
Canada’s second-biggest parts maker, Linamar Corp., has more to worry about in the event that a 50per-cent U.S.-content requirement becomes reality. Only about 27 per cent of its North American fixed assets are concentrated in the United States, the data show.
CEO Linda Hasenfratz came out swinging against such a proposal in the opening statement of her earnings call last week.
“There is no chance that countryspecific content will be agreed to by Canada or Mexico. So there is no sense in evaluating that scenario.”
Ms. Hasenfratz sits on the Canadian government’s NAFTA advisory council.
Shares in the Guelph, Ont.-based company tumbled more than 15 per cent after it missed earnings estimates.
Magna International (MG) Close: $67.61, up 37¢ Martinrea International (MRE) Close: $13.90, up $1.39 Linamar (LNR) Close: $67.05, up 89¢

The Globe and Mail. 16 Nov 2017. Special to The Globe and Mail. How to handle trade noise. Build a quality portfolio – not based on headlines.Investors should avoid making major decisions based on heated NAFTA negotiations, advisors say.
DAVID ISRAELSON

History has shown, time and again, that investors who have patience do vastly better than those who actively trade …. The portfolio should really only change when your plan changes. Andrea Thompson Senior financial planner Coleman Wealth, Raymond James Ltd.

As negotiations over NAFTA and other trade deals slog on, it’s best to take it easy when it comes to adjusting your investments.
Just as it’s usually impossible to time the market, experts consider it unwise to base major portfolio decisions now on the outcome of Canada’s talks over the North American free-trade agreement and other significant trade relationships.
“Too much investment news is sometimes referred to as investment porn. Too much of it gets the emotions flowing,” says Sandra Foster, president of Headspring Consulting Inc. and a Toronto-based financial author and advisor.
It’s no secret that NAFTA negotiations between Canada, the United States and Mexico have not been going well. On Oct. 17, the three countries agreed to extend negotiations into the first quarter of 2018, citing “significant conceptual gaps.”
Just how significant those differences are remains to be seen. What happens early next year in the negotiations is as hard to predict as the contents of U.S. President Donald Trump’s next tweet.
By agreeing to extend the negotiations, it means the president “wasn’t ready to pull out, and neither were the other two countries,” says Bernard Wolf, professor emeritus of economics and international business at York University’s Schulich School of Business in Toronto.
“But given his protectionist stance and all that he said [about NAFTA] during his 2016 election campaign, it’s difficult to determine what he’s going to do.”
It’s not only NAFTA and Mr. Trump’s mood swings that are creating uncertainty over the composition of portfolios. Nearly a year and a half after British voters opted narrowly to leave the European Union, negotiations over Brexit are mired in procedural detail.
There’s a difference of opinion on both sides over whether Britain can – or should – go for a “hard” Brexit (simply leave the EU) or transition toward a less close trade relationship with Europe after Britain leaves in 2019.
In Asia, Canada, Japan and other countries are attempting to salvage the remnants of the Trans-Pacific Partnership (TPP), a free trade agreement negotiated between 12 nations and signed in 2016.
Make that 11 nations now – Mr. Trump quickly withdrew his country from the TPP, leaving the deal’s future and its possible effectiveness without the United States uncertain.
When it comes to investors whose portfolios are weighted heavily in North American holdings, it may be tempting to consider going short on stocks that rely on continent-wide trade and supply chains, for example auto-parts manufacturers, crossborder transportation and logistics firms and agricultural suppliers.
But that’s probably not wise, says Markus Muhs, portfolio manager at Canaccord Genuity Wealth Management in Edmonton.
“For long-term investors, the less they pay attention to the news, the better. Over the long term, a globally diversified portfolio of stocks trends upward, with only temporary setbacks along the way,” he says.
“That long-term growth rate averages out to a pretty decent number. Along with a disciplined savings strategy, it will facilitate a good, dignified retirement for most of us.”
It’s true that portfolios could be affected if NAFTA collapses or a new deal is struck that brings new and significant setbacks to particular sectors – in any of the three countries.
“NAFTA has been the cornerstone for strong economic growth and rising prosperity for Canada, the United States and Mexico since 1994. The U.S. remains Canada’s No. 1 trading partner, with Canada’s key exports being oil and automotive vehicles,” says Neville Joanes, chief investment officer at WealthBar Financial Services Inc., a robo-advisor service headquartered in Vancouver.
An “imbalanced” trade deal “will be to the detriment of Canada and Mexico, and will impact currency, relative interest rates and economic growth,” he says. The difficulty is that no one knows yet what kinds of imbalances might materialize, or indeed, whether they will materialize at all.
“History has shown, time and again, that investors who have patience do vastly better than those who actively trade,” says Andrea Thompson, senior financial planner at Coleman Wealth, Raymond James Ltd. in Toronto.
“Once you build a quality portfolio that suits your plan, you shouldn’t change it based on the headlines. The portfolio should really only change when your plan changes.”
If you really feel you must tinker with your portfolio, Ms. Foster of Headspring Consulting Inc. suggests, you should err on the side of caution, lowering your exposure to risk.
“When the market itself becomes riskier, some investors rebalance their equity holdings to the lower end of their recommended range. For example, if the recommended range for equity holdings is 30 to 40 per cent of their portfolio, the investor might decide to reduce equity holdings to 30 per cent,” she says.
At WealthBar, Mr. Joanes suggests being patient and watchful.
“We will monitor the [NAFTA] negotiations and await the outcome. Then we’ll evaluate changes to portfolios,” he says.

THE GLOBE AND MAIL. THE CANADIAN PRESS. NOVEMBER 16, 2017. Softwood dispute underscores need for NAFTA dispute mechanism: expert
MIA RABSON

OTTAWA - Canada's decision to turn to the North American Free Trade Agreement for a solution to the latest softwood lumber dispute proves how critical the agreement's dispute resolution mechanisms are to this country, a Canadian international trade expert said Wednesday.

Canada on Tuesday asked a review panel under Chapter 19 of NAFTA to investigate the countervailing duties imposed on Canadian softwood imports into the United States.

The U.S. argues Canada unfairly subsidizes its lumber industry, and the question for the panel will be whether the duties are legal under U.S. laws.

This is the fifth Canada-U.S. softwood lumber dispute since 1982, and the third in which Canada has sought relief under the dispute mechanisms of free trade agreements with the U.S. They have largely ruled in Canada's favour in the past.

Colin Robertson, a former Canadian trade diplomat, said Wednesday it's no surprise Canada made the application despite political battles with the U.S. over the very existence of the Chapter 19 dispute mechanism.

"It would not be logical for us not to use it and we had to use it within a certain time frame so of course we're going to apply it," said Robertson.

Chapter 19 of NAFTA means Canada can get a panel made up of U.S. and Canadian trade experts to decide if the duties follow U.S. trade law, rather than going to the U.S. court system.

Robertson said trade agreements were pursued by Canada in the first place largely to create a dispute settlement mechanism "to give us some relief from unfair application – and I stress unfair – of American trade law."

"In a psychological fashion from a Canadian perspective (this) kind of underlines why Chapter 19 is essential," he said.

However U.S. President Donald Trump wants Chapter 19 eliminated, and he has support from many U.S. industries who feel it is unconstitutional and that the American courts are best equipped to determine whether U.S. law is being upheld.

The Canadian government has indicated eliminating Chapter 19 is a non-starter.

Robertson said the negotiations on NAFTA are largely parallel to this particular dispute, and Canada and the U.S. almost certainly knew when the last softwood agreement expired in 2015, that we'd end up back at Chapter 19 eventually.

In the past, NAFTA panels have told the U.S. its laws did not allow it to determine whether Canada's pricing system for wood was fair using U.S. market prices, or that if there was a subsidy at play it was never as big as what the Americans tried to suggest with their duties. In 2005, a NAFTA panel unanimously agreed the U.S. industry had not been injured by Canada's stumpage fee system.

Canada would hope to have similar findings again.

NAFTA rules require a panel decision on this complaint be made no later than the end of September 2018.

REUTERS. NOVEMBER 16, 2017. U.S. exit from NAFTA would not be devastating for Mexico: minister

MEXICO CITY (Reuters) - Mexico’s economy minister said on Thursday he did not agree with statements made by U.S. Commerce Secretary Wilbur Ross that it would be devastating for Mexico if the United States pulls out of the North American Free Trade Agreement (NAFTA).

“No, I don’t think so,” Ildefonso Guajardo said in a television interview when asked if he agreed with Ross.

“Without a doubt, Mexico could face a short-term impact because the market is very sensitive to marketing, branding ... Our ability to adjust, and the manner in which we do it, is what will allow us to resist any potential change.”

In an interview with The Wall Street Journal CEO Council on Tuesday, Ross said that it “would be devastating to the Mexican economy” if the United States were to pull out of NAFTA.

Guajardo said that if NAFTA talks, which are currently in their fifth round in Mexico City, do end up stretching into March, the United States must ask itself if it wants the trade talks to influence Mexico’s July 2018 election.

The fifth round of NAFTA talks entered their second day on Thursday, proceeding under the shadow of tough U.S. demands and without the presence of trade ministers who agreed to sit out the discussions.

On Wednesday, Guajardo said that Mexican negotiators will propose that NAFTA be rigorously reviewed every five years to counter a U.S. “sunset clause” proposal that would kill the deal if it is not renegotiated after five years, an idea widely criticized as undermining long-term investments.

The economy minister described the proposal as a “more rigorous evaluation mechanism” than currently exists. Under current rules, each country has the right to leave the deal when it wants.

Guajardo emphasized that the counterproposal would not let the trade agreement automatically expire and said he thought it is unlikely that U.S. President Donald Trump would trigger the existing deal’s termination clause later this year.

But the minister, who served as part of Mexico’s NAFTA negotiating team in the early 1990s, added he could not rule out the possibility that Trump would decide to trigger a U.S. withdrawal from the 23-year-old accord in the first quarter of 2018.

Reporting by Gabriel Stargardter and Veronica Gomez; Editing by Bernadette Baum

INTERNATIONAL TRADE

The Globe and Mail. 16 Nov 2017. After years of talks, the time is right to seal a Canada-India free-trade deal
GOLDY HYDER, CEO and president of Hill+Knowlton Strategies

At a time when our trading relationship with the United States is being tested and the full impact of Britain’s exit from the European Union remains unclear, the upside of securing a free-trade deal with a vital market such as India is too big to ignore.

It has now been seven years since prime ministers Stephen Harper and Manmohan Singh announced the launch of bilateral free trade negotiations between Canada and India. The time has come for their successors to finish the job, and to do so within the next year.
Current Prime Ministers Justin Trudeau and Narendra Modi are set to face general elections in 2019, and so if these bilateral trade talks aren’t concluded in 2018, they could be pushed back to 2020 – or beyond.
Trade Minister François-Philippe Champagne, Innovation Minister Navdeep Bains and Transport Minister Marc Garneau are currently leading a trade mission to India, with stops in New Delhi, Mumbai, Pune, Hyderabad and Bangalore. The delegation is not only reaffirming Canada’s commitment to strengthening bilateral trade with these crucial Indian cities, it is also helping to prepare the ground for Mr. Trudeau’s long-awaited and much-anticipated state visit to India next year.
To get a sense of how long the Canada-India free-trade talks have been going on, Mr. Champagne is the fourth trade minister to oversee them, building on work started by Peter Van Loan and continued by Ed Fast and Chrystia Freeland. Although Canada and India have been talking about a free-trade agreement since 2010, they haven’t made much real progress.
But now, in the eighth year of talks, there is reason for renewed optimism.
Financial uncertainty and slow growth in both countries offer an added incentive for Canadian and Indian negotiators to redouble their efforts and conclude a deal that would bring considerable economic benefits to both countries. Economic modelling completed by the Canada-India Joint Study Group estimates the annual gross domestic product gains to Canada that could result from a bilateral trade deal are between $6-billion (U.S.) and $15-billion.
At a time when our trading relationship with the United States is being tested and the full impact of Britain’s exit from the European Union remains unclear, the upside of securing a free-trade deal with a vital market such as India is too big to ignore.
None of this is to suggest the challenges to be overcome aren’t significant. Concluding a trade deal with India will require both governments to invest the necessary time, effort, resources and political capital to secure a positive outcome.
For Canada, this means adopting many of the tactics we have used in the United States in support of the North American free-trade agreement renegotiations – such as leveraging support from the Canadian business community as well as all three levels of government.
The role of business leaders is vital, and they should be no less vocal about the importance of increased trade with India than they are about boosting trade with China or Japan. With storms clouds moving across the global trade landscape, imagine the competitive advantage Canada could secure if it had agreements in place giving it preferential access to India, China, Japan and South Korea, in addition to the one we already have with the EU (Comprehensive Economic and Trade Agreement).
Concluding a deal with India would not mean sidetracking talks with other countries. In fact, the opposite may well be true.
As CETA, the Trans-Pacific Partnership and NAFTA have shown, Canada has the expertise and experience needed to negotiate multiple complex trade agreements simultaneously. By making clear to its counterparties that Canada has other trading partner options in play, it could find itself in an even better position to secure the concessions from India needed to sign an agreement.
Of course, for any of this to happen, Canada must dedicate itself to the aggressive and ambitious goal of securing a free-trade agreement with India in the next year – because imposing a hard deadline is essential to focusing discussions and avoiding distractions.
It is often said that Canada and India share many things – a common language, the common law and comparable financial systems – which is true. But there’s another thing we share: Indians and Canadians always love a good deal. A Canada-India free-trade agreement is a good deal we should make.

CETA

TCS. November 16, 2017. CETA expected to increase EU investment in Canada

The EU is a key investor in Canada—second only to the United States—and the Canada‑European Union Comprehensive Economic and Trade Agreement (CETA) will likely lead to further increases in investment.

CETA’s provisions are designed to provide more protection for investors and as new investment opportunities are explored, Canada will likely see greater investment from the EU, according to Global Affairs Canada’s Office of the Chief Economist.



*FDI data are for EU28 member countries.
**FDI data for mining and oil and gas extraction, the largest component of the primary sector, is not available for 2010 and 2011.
Source: Office of the Chief Economist, Global Affairs Canada
Data: Statistics Canada
Stock of inward FDI from the EU* in Canada, by major sectors ($ billions)

Year	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015
Services ($ billions)	32.7	42.3	44.2	62.5	61.2	58.0	57.2	62.1	67.9	69.4	73.8	81.4	109.6	111.2	120.5	141.3
Primary ($ billions)	5.6	3.7	3.0	3.1	4.0	6.1	8.1	10.3	2.1	3.2	-	-	14.7	34.5	36.1	47.9
Manufacturing ($ billions)	55.0	41.9	42.9	31.5	30.7	32.6	34.8	61.0	76.7	77.7	71.2	72.6	77.9	74.0	70.7	51.5

Foreign direct investment (FDI) in Canada from the 28 EU economies collectively accounted for more than 30 percent of the overall stock of FDI in Canada in 2015, the latest year for which stats are available.

The majority of FDI in Canada from the EU continued to be in services, accounting for 59 percent of EU direct investment in Canada. Investment in services from the EU experienced a major increase in the five-year period from 2010‑2015, almost doubling in value to $141.3 billion by the end of 2015. By contrast, FDI from the EU in manufacturing, which reached $52 billion in 2015, fell to below its value in 2000, and approximated investment in primary industries—agriculture, forestry, fishing, mining, and oil and gas—at nearly $48 billion.

As most services are neither tradeable nor storable, and therefore must be produced and consumed in the same country, FDI is the dominant means of delivering services to foreign markets. Within services, three sub‑sectors accounted for more than half of the EU’s FDI stock in Canada in 2015: management of companies and enterprises (26 percent); finance and insurance (17 percent); and wholesale and retail trade (10 percent). The management of companies and enterprises comprises establishments primarily engaged in managing firms, or holding their financial assets.

The upshot

With the recent provisional implementation of CETA, the volume of FDI in Canada from the EU can be expected to rise further as new investment opportunities are explored, both in the domestic and North American markets. CETA’s provisions are designed to provide greater protection to investors and to accord them the same treatment as domestic investors.

With CETA in place, the threshold for acquisitions of Canadian businesses by EU investors under the Investment Canada Act for review of net benefit to Canada was raised by 50 percent, from $1 billion to $1.5 billion. This higher threshold will facilitate EU investment in Canada, as fewer EU‑owned companies will be required to undergo the net benefit review process under the Investment Canada Act.

FULL DOCUMENT: http://tradecommissioner.gc.ca/canadexport/0002128.aspx?lang=eng

INTERNATIONAL TRANSACTIONS

StatCan. 2017-11-16. Canada's international transactions in securities, September 2017

• Foreign investment in Canadian securities: $16.8 billion (September 2017)
• Canadian investment in foreign securities: $2.4 billion (September 2017)

Source(s): CANSIM table 376-0131.

Foreign investment in Canadian securities totalled $16.8 billion in September, up from $9.8 billion in August. At the same time, Canadian investment in foreign securities slowed to $2.4 billion in September, after reaching $12.1 billion in August.

As a result, international transactions in securities generated a net inflow of funds of $14.4 billion in the Canadian economy in September, for a total of $39.6 billion in the third quarter. This activity was led by strong acquisitions of Canadian bonds.

Foreign investment in Canadian bonds remains strong

Foreign investment in Canadian securities increased to $16.8 billion in September, from an investment of $9.8 billion in August. The bulk of the inflows targeted the Canadian bond market in the month. Foreign acquisitions of Canadian securities reached $51.6 billion in the third quarter, led by record foreign acquisitions of federal government bonds.

Chart 1: Foreign investment in Canadian securities

Non-resident acquisitions of Canadian bonds reached $18.7 billion in September. Secondary market purchases of federal government bonds, mainly bonds with short-term maturities, contributed the most to the investment activity. In addition, non-resident investors added $2.8 billion of federal government business enterprises bonds and $5.9 billion of private corporate bonds to their holdings.

Canadian long-term interest rates were up by 29 basis points in September. The Bank of Canada raised its benchmark overnight interest rate by 25 basis points to 1% in September, the second such increase in the quarter. Meanwhile, the Canadian dollar appreciated slightly against its US counterpart in the month.

Foreign investors reduced their holdings of Canadian money market instruments by $6.0 billion in September, the largest decline since March 2014. A reduction in foreign holdings of federal government paper accounted for most of the divestment, reflecting some movement of funds from short to longer term investments during the month, and more generally over the quarter. Canadian short-term interest rates increased by 28 basis points in the month.

Foreign investment in Canadian equities targets the financial sector

Foreign investment in Canadian equities amounted to $4.1 billion in September, the highest investment in four months. Foreign purchases mainly targeted shares from the finance and insurance sector, specifically those from the banking sector. This was the eighth consecutive month of foreign acquisitions of Canadian shares. Canadian stock prices were up by 2.8% in September.

The total value of Canadian equity and investment fund shares held by non-resident investors was $654.0 billion as of the end of September, with about 95% in listed shares. On a sector basis, the finance and insurance as well as the management of companies together accounted for approximately half of the overall holdings.

Combined with foreign holdings of $1,404.2 billion in Canadian debt instruments, securities are an important component of Canada's overall international liabilities.

Canadian investment in foreign securities slows

Canadian investors added $2.4 billion of foreign securities to their holdings in September, down from a $12.1 billion investment in August. Acquisitions of both foreign equity and debt securities were down significantly in the month. Overall, Canadian purchases of foreign securities reached $12.0 billion in the third quarter of the year, up from $7.8 billion in the second quarter. Activity in the quarter was led by acquisitions of US securities.

Canadian investment in foreign equities amounted to $1.7 billion in September, following acquisitions of $7.2 billion in August. The bulk of the investment was in US shares. US stock prices were up by 1.9% in the month.

Canadian investors acquired $686 million of foreign debt securities in September. Acquisitions of US instruments, mainly Treasury bills and corporate bonds, were moderated by sales of non-US instruments. US long-term interest rates were down by one basis point, while short-term rates were up by two basis points in the month.

Chart 2: Canadian investment in foreign securities

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171116/dq171116a-eng.pdf

REUTERS. NOVEMBER 16, 2017. Bonds drove Sept foreign investment in Canadian securities

OTTAWA (Reuters) - Foreign investors accelerated their purchases of Canadian securities in September, scooping up bonds after the Bank of Canada raised interest rates for a second time, data from Statistics Canada showed on Thursday.

International investors bought C$16.81 billion ($13.17 billion) in Canadian securities after acquiring a downwardly revised C$9.77 billion in August.

The increase was driven by C$18.73 billion in purchases concentrated in federal bonds with short-term maturities.

Long-term interest rates rose 29 basis points in September after the Canadian central bank raised interest rates to 1 percent in its second rate increase this year.

Meanwhile, Canadians reduced their purchases of international securities, buying just C$2.41 billion as investments in foreign equities and debt slowed significantly.

Canadians bought C$1.73 billion of foreign stocks, with the bulk of that in U.S. shares, which rose 1.9 percent in September. Investors bought just C$198 million in foreign bonds, mainly U.S. Treasuries and corporate bonds.

Reporting by Leah Schnurr; Editing by Steve Orlofsky

MANUFACTURING

StatCan. 2017-11-16. Monthly Survey of Manufacturing, September 2017

• Manufacturing sales: $53.7 billion, September 2017, 0.5% increase (monthly change)
• Inventories: $73.3 billion, September 2017, -0.7% decrease (monthly change)
• Inventory-to-sales ratio: 1.36, September 2017, -0.02 pts decrease (monthly change)
• Unfilled orders: $85.1 billion, September 2017, -1.1% decrease (monthly change)

Source(s): CANSIM table 304-0014

Manufacturing sales rose 0.5% to $53.7 billion in September, reflecting higher sales in the petroleum and coal product industry.

Overall, sales were up in 7 of 21 industries, representing 28.9% of the Canadian manufacturing sector. Sales of non-durable goods rose 1.7% to $25.4 billion, while sales of durable goods decreased 0.5% to $28.4 billion.

In constant dollars, sales increased 0.7%, indicating that higher volumes of manufactured goods were sold in September.

Chart 1: Manufacturing sales rise

Petroleum and coal product sales lead the gains

Sales in the petroleum and coal product industry grew 10.3% to $5.5 billion in September, the third consecutive monthly gain. The increase reflected gains in prices and volumes for petroleum and coal product. After removing the effect of price changes, sales in volume terms increased 6.7% in September.

Sales in current dollars also increased in the machinery (+1.9%) and paper (+1.0%) industries. Sales in constant dollars for these industries increased 2.1% and 1.4%, respectively, indicating that higher volumes of goods sold were responsible for the gains.

Partially offsetting these increases in current dollars were declines in the food and transportation equipment industries. Sales in the food industry were down 1.0% to $8.4 billion in September. Widespread decreases in sales were reported, and reflected lower prices and volumes. After removing price effects, sales volumes of the food industry declined 0.4% in September.

Overall sales in the transportation equipment industry declined 0.7% to $10.3 billion, although increases in the railroad rolling stock industry (+66.8%), other transportation equipment (+36.5%) and aerospace product and parts (+5.6%) were posted in September. These gains were not sufficient to offset decreases in the motor vehicle (-5.9%) and motor vehicle parts (-2.5%) industries. After removing price effects, volumes sold declined by 4.5% and 1.2% respectively in these industries, following strong volumes in August.

Manufacturing sales up in seven provinces

Sales rose in seven provinces in September, led by Quebec and New Brunswick.

Manufacturing sales in Quebec rose 1.7% to $13.3 billion, their highest value on record. The growth in September was largely attributable to the petroleum and coal (+24.9%) and the aerospace product and parts (+10.3%) industries. The increases were partly offset by a 2.8% decline in the food industry.

In New Brunswick, manufacturing sales rose 13.1% to $1.7 billion. This was their highest level since November 2014 and reflected higher sales of non-durable goods.

After increasing 2.3% in August, sales in Ontario fell 0.9% to $24.4 billion in September. The decline was largely attributable to lower sales in the motor vehicle (-6.3%), motor vehicle parts (-2.7%) and primary metal (-3.6%) industries. These decreases were partially offset by a 5.0% increase in sales in the machinery industry.

In Alberta, sales declined 0.9% to $5.8 billion, following a 1.6% increase in August. The overall decline in September was largely driven by lower sales in the food product (-4.3%) and chemical (-2.7%) industries.

Inventory levels decline

Inventory levels fell for the fourth consecutive month, down 0.7% to $73.3 billion in September. Inventories were down in 10 of 21 industries, led by the transportation equipment (-2.8%), primary metal (-2.0%) and machinery (-1.7%) industries. These decreases were partially offset by a 4.1% rise in the petroleum and coal product industry.

Chart 2: Inventory levels decline

The inventory-to-sales ratio fell from 1.38 in August to 1.36 in September. The inventory-to-sales ratio measures the time, in months, that would be required to exhaust inventories if sales were to remain at their current level.

Chart 3: The inventory-to-sales ratio decreases

Unfilled orders decrease

Unfilled orders declined 1.1% to $85.1 billion in September. Most of the decrease was attributable to a drop in unfilled orders in the aerospace product and parts industry, as well as the other transportation equipment industry.

Chart 4: Unfilled orders decrease

These declines were partially offset by an increase in unfilled orders in the motor vehicle and machinery industries.

New orders decreased 1.7% to $52.8 billion, following a 5.2% gain in August. The decline was mainly attributable to fewer new orders in the aerospace product and parts industry and in the motor vehicle industry. The decrease was partially offset by higher new orders in the petroleum and coal product industry.

Chart 5: The rubber products industry sales and the plastic products industry sales from 1970 to 2016 

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171116/dq171116b-eng.pdf

THE GLOBE AND MAIL. THE CANADIAN PRESS. NOVEMBER 16, 2017. Factory sales climb 0.5 per cent in September

OTTAWA - Canadian manufacturing sales rose 0.5 per cent in September, boosted by the petroleum and coal product industry, Statistics Canada said Thursday.

The agency said the manufacturing sales totalled $53.7-billion for the month as seven of 21 industries gained ground.

In constant dollars, overall sales increased 0.7 per cent, indicating higher volumes of manufactured goods were sold in the month.

"Both headline and volume prints for manufacturing sales were surprisingly strong despite concerns that labour disruptions at an assembly plant in Ontario could negatively impact automotive sales," TD Bank senior economist Fotios Raptis wrote in a report.

"This report follows on the heels of a hot August report that featured a rebound in automotive production."

The stronger-than-expected report comes as economists predict the economy is slowing from the red-hot pace it set in the first half of the year.

The economic strength in the first half of the year helped prompt the Bank of Canada to raise its key interest rate target twice this year, but the central bank kept it on hold last month as it also forecast growth would slow.

CIBC economist Nick Exarhos noted the gains in manufacturing in September appeared to have been very narrowly based.

"All told, today's results were better than we were expecting, but the narrow scope of the increase and the still troubling trend in export volumes continues to point to reasons for concern ahead," he wrote in a report.

Sales of non-durable goods rose 1.7 per cent to $25.4-billion, while sales of durable goods fell 0.5 per cent to $28.4-billion.

The petroleum and coal product industry saw sales grow 10.3 per cent to $5.5-billion, boosted by gains in prices and volumes.

Meanwhile, sales in the transportation equipment industry fell 0.7 per cent to $10.3-billion as sales in the motor vehicles and motor vehicle parts sectors lost ground.

Regionally, sales rose in seven provinces in September, led by Quebec, which gained 1.7 per cent and New Brunswick, which rose 13.1 per cent.

Sales in Ontario fell 0.9 per cent to $24.4-billion in September.

REUTERS. NOVEMBER 16, 2017. Canada September manufacturing sales unexpectedly rise on coal, petroleum

OTTAWA (Reuters) - Canadian manufacturing sales unexpectedly rose in September, boosted by sales of petroleum and coal products, data from Statistics Canada showed on Thursday.

A Bombardier q400 airplane is seen being assembled at the Bombardier aircraft manufacturing facility in Toronto, November 25, 2010. REUTERS/Mark Blinch/File Photo
The 0.5 percent increase in total sales topped economists’ forecasts for a 0.3 percent decline, while volumes rose 0.7 percent. August was downwardly revised to a gain of 1.4 percent from a previously reported 1.6 percent increase.

Still, the breadth of sales across sectors in September was not deep, with sales up in 7 out of 21 industries, accounting for just 28.9 percent of the manufacturing sector.

The petroleum and coal industry led the way with a 10.3 percent increase in sales, amid higher prices and volumes.

The gain was tempered by a 0.7 percent decline in the transportation sector as sales of motor vehicles and parts fell. Excluding vehicles, total manufacturing sales were up 1.4 percent.

Overall new orders declined by 1.7 percent after a strong gain in August and as there was less demand in the aerospace and vehicles industries.

Reporting by Leah Schnurr; Editing by Bernadette Baum

RETAILS

StatCan. 2017-11-16. Monthly Survey of Large Retailers, September 2017

Monthly data from the large retailers program are now available for September.

The large retailers program provides a commodity breakdown of national retail sales for a panel of about 75 large retail enterprises participating in the Retail Commodity Survey.

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171116/dq171116g-eng.pdf

BUDGET

Department of Finance Canada. November 15, 2017. Parliamentary Secretary to the Minister of Finance Hosts Pre-Budget Consultation Roundtables in Whitby. Canadians Invited to Offer Their Ideas on How to Grow and Strengthen the Middle Class

Whitby, 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, communities and the economy are working. Over 500,000 new jobs have been created since 2015 and the unemployment rate is nearly the lowest it has been in a decade. Canada now has the fastest-growing economy in the G7, giving the Government the ability to reinvest the benefits of that growth back into the people who contributed most to that success.

Today, Joël Lightbound, the Parliamentary Secretary to the Minister of Finance, together with Celina Caesar-Chavannes, the Member of Parliament for Whitby, hosted roundtables with local business and community representatives from the non-profit sector and business community in Whitby. These roundtable discussions are part of the Government of Canada's consultations for Budget 2018. During these pre-budget consultations, Canadians are invited to provide their ideas and suggestions on how the Government can make sure they are ready for the changes and opportunities that lie ahead, and what their family, community and country need to face the future with confidence.

As Canada's economy continues to grow, it is important to ensure that the benefits of that growth are shared by the middle class and those working hard to join it. That means continuing to make smart investments in people and communities to ensure continued progress for the middle class, and investing in lifelong learning to give Canadians the tools they need to find good, well-paying jobs in the economy of tomorrow. It also means ensuring that government policy and budget decisions consider impacts on all genders and advance gender equality.

Over the coming weeks, Canadians can submit their ideas as part of pre-budget consultations in person and online through the website www.budget.gc.ca/pbc18.

Quote

"The Government's ambitious plan to grow the economy is working and we are making sure the benefits of that growth help the middle class. Our pre-budget consultations are about listening to Canadians to better understand their challenges and ensure we are doing everything we can to support the middle class and those working hard to join it."

- Joël Lightbound, Parliamentary Secretary to the Minister of Finance

See Also:

• Your Budget 2018: https://www.budget.gc.ca/2018/prebudget-prebudgetaire/index-en.html
• Progress for the Middle Class—Fall Economic Statement 2017: https://www.budget.gc.ca/fes-eea/2017/home-accueil-en.html
• Presentation: #YOURBUDGET2018: http://www.fin.gc.ca/n17/docs/pbc-cpb-2018-eng.pdf

MONETARY POLICY

BANK OF CANADA. November 15, 2017. Uncertainty can affect monetary policy actions, says Senior Deputy Governor Wilkins
New York, New York

Uncertainty is an important consideration for monetary policy decisions and, depending on the circumstances, it can prompt central banks to be more, or less, aggressive, Senior Deputy Governor Carolyn A. Wilkins told the Money Marketeers of New York University in a speech today.

“Central bankers have well-established methods to deal with uncertainty in the conduct of monetary policy,” Senior Deputy Governor Wilkins said. “If you want to understand why policy actions were taken and what actions might be in store, you need to understand both the Bank’s base-case projection and how the Bank has factored uncertainty into its policy decisions.”

In her remarks, Senior Deputy Governor Wilkins elaborated on several observations: uncertainty is a fact of life, monetary policy becomes asymmetric when uncertainty is embraced and uncertainty is not a reason for paralysis in decision making.

“Whether it is about how aggressive or how cautious policy should be—getting the dosage right demands sound judgment about complex trade-offs,” she said. “Checking the logic of this judgment through formal modelling exercises is good practice.”

Senior Deputy Governor Wilkins illustrated through two case studies how uncertainty can affect policy-makers’ decisions. In the first one, policy-makers confronted with the prospect of reaching the effective lower bound on interest rates choose to be more aggressive than a model would predict, as occurred in the aftermath of the 2008 financial crisis. In the second case, heightened uncertainty can lead the central bank to be more cautious about changing its policy interest rate. This can happen when policy-makers are concerned that inflation could stray from the target range, when they are unsure about the impact their policy measures are having on the real economy or when they want to avoid reversing policy actions within a short time span.

“Caution has its limits, because there are complex trade-offs involved, including those related to financial stability,” Senior Deputy Governor Wilkins said, highlighting some of the research that the Bank is undertaking to help better quantify these trade-offs.

FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/press_151117.pdf

BANK OF CANADA. November 15, 2017. Embracing Uncertainty in the Conduct of Monetary Policy
Carolyn A. Wilkins - Senior Deputy Governor
Money Marketeers of New York University
New York, New York

Introduction

Uncertainty is top of mind for many people. This is the case whether it is related to the future of trade agreements, job security—as economies become more automated­—or threats from geopolitical tensions in many parts of the world. Actually, economic news in several advanced economies has recently been surprising people on the upside. At the same time, many feel like the world is becoming more and more uncertain. Canada is no exception.

For central bankers like me, there is nothing particularly new in this, even though the sources of concern are changing over time. This is evident to those who remember the oil price shock in the 1970s or Black Monday in the 1980s, among other turbulent events. Our job has always been to steer the right course for monetary policy in the face of uncertainty. Today, as some central banks contemplate shifting gears, it will be critical to understand how uncertainty is factored into monetary policy decisions if you want to understand and anticipate policy actions.

In my remarks this evening, I will dig into this set of issues in the context of Bank of Canada policy. Your organization, the Money Marketeers of New York University, is dedicated to fostering discussion of relevant policy issues. So, it is the perfect place to do this, and I would like to thank you for the invitation.

I will structure my remarks around three observations that are explored in a discussion paper I worked on with my colleagues Rhys Mendes and Stephen Murchison.1 Put simply, the three observations are the following:

1. Uncertainty is a fact of life.
2. Monetary policy can become asymmetric when uncertainty is embraced.
3. Uncertainty is not a reason for paralysis in decision making.

It is no surprise that our work uncovered areas where further research is most needed to improve the framework for dealing with uncertainty. I will get to that as well.

Uncertainty Is a Fact of Life

So, let us start with my first observation. Uncertainty has always been a fact of life for everyone. And, like many businesses and households, central banks have established techniques to reduce, where possible, the level of uncertainty they experience. The Bank has devoted considerable effort to reducing uncertainty by being clear about the objectives of monetary policy and the framework for achieving those objectives. The inflation-control agreement with the Canadian federal government has been in place for the past quarter of a century. It provides a clear objective for monetary policy and operational independence for the Bank2.

We also invest continuously in state-of-the-art forecasting models. For example, we recently updated one of our main projection models to include a richer role for indebted households in the transmission of monetary policy—a timely innovation, given that household debt has increased notably in Canada in recent years.3 We use competing models to inform our deliberations when possible. This is like getting your investment advice from more than one broker. We are also exploiting multiple sources of information, such as surveys of businesses, to improve our reading of the economy.

It would be fabulous if these efforts could eliminate uncertainty altogether, but the real world is not so obliging. The reality is that researchers are aiming at a moving target, given ongoing structural change in the economy, such as the aging of the population. And there is also the possibility of the truly unexpected, such as natural disasters. That means a considerable degree of uncertainty is irreducible at any given time. In the current context, the Bank is particularly focused on data that indicate how wages and potential output are progressing, as well as the effects of the two interest rate increases we made over the summer. And we are following trade negotiations closely.

So how does the Bank deal with this irreducible uncertainty in practice? Like many other central banks, we use projection models that capture key economic relationships to produce a forecast. This forecast includes the monetary policy actions likely to be needed to bring inflation back to our 2 per cent target over the projection horizon. The necessary policy actions are generated by what we call a simple “monetary policy rule.”

This policy rule captures the Bank’s average historical behaviour and does not change with the level or sources of uncertainty. Because of that, it is as if uncertainty has been set aside. This is closely related to “certainty equivalence” in the monetary policy literature, which is akin to aiming for the bull’s eye, even though you know there are winds that may move your arrow in some unknown direction.4 While this is a useful starting point, it is insufficient.

In fact, there is a rich economic literature that shows why this framework applies only in a limited set of circumstances that do not look very much like the real world.5 The market participants here will know first-hand how much volatility can affect investment behaviour, even when expected returns are unaffected. And some investors, to avoid tail risks on the downside, may decide to forgo higher expected returns.

Quantifying how best to respond to uncertainty requires knowledge of the type and degree of uncertainty. It is manageable in some cases, but it is a tall order in others. In practice, we are faced with uncertainty about the retreat from globalization and threats to peacetime relationships. We are also faced with uncertainty of a more positive nature, like the promise of digitalization for productivity growth and structural reform in emerging economies. And, we are faced with scenarios in which even the range of outcomes is unknown. In these cases, statistical estimates based on the past are obviously of little help.

The current uncertainty around the future of the North American Free Trade Agreement (NAFTA) and related policies is a case in point. We have incorporated an estimate of the effects of uncertainty on business investment and exports to better balance the risks. At the same time, we have assumed no change to trade agreements in the base case. And, aside from the estimated uncertainty effects, we have not factored possible changes in trade relations into our current stance of monetary policy either. Instead, we are following developments very closely. We have mapped out the main channels of transmission of a rise in protectionism. And we are sharpening our modelling tools so that we can incorporate any concrete developments into the projection, should they occur.6 This approach is consistent with how we’ve treated uncertainty surrounding other trade agreements in the past, such as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the Trans-Pacific Partnership (TPP).

So, in practice, central banks start with a formal framework that is consistent with certainty equivalence. We then apply judgment to account for the main sources of uncertainty considered to be missing from the framework.

When Monetary Policy Becomes Asymmetric

This leads me to my second observation. Monetary policy can become asymmetric when uncertainty is taken seriously in policy design. This can lead policy-makers to deviate substantially from the simple world of certainty equivalence.

It is here that our understanding can greatly benefit from cross-checking our logic with the economic literature on how to conduct monetary policy under uncertainty. To illustrate, let me discuss two situations that are particularly relevant in the current context—the first leads to more-aggressive policy actions and the second leads to what is often referred to by central banks as “caution” or “patience.”

When uncertainty can motivate aggressive policy action

The first situation is best illustrated by considering how to conduct monetary policy when interest rates are close to the effective lower bound (ELB).

We all likely remember when central banks, including the Bank of Canada, reduced interest rates aggressively when financial markets seized up in 2008. Knowing what we know today—that the biggest global recession since the Great Depression was about to begin—these policy actions seem self-evident. I can tell you, they were less evident in real time. When we compare our policy actions with what would have been prescribed based on our past behaviour, we can see that the response was exceptional. The Bank eased monetary policy significantly more than usual, by as much as 2 percentage points more at one stage.

This increased aggressiveness is a textbook example of optimal policy when there is the possibility of being constrained by the ELB.7 While this constraint is mitigated by the availability of unconventional monetary policy tools, it is not eliminated, because there is considerable uncertainty about their effectiveness.8 The Bank’s actions 10 years ago reduced the chance that this constraint would bind by generating additional economic momentum going into the recession. So even though gross domestic product and inflation fell, they fell by less than they would have if the pace of cuts had been slower. As a result, the only unconventional tool the Bank needed to use at the time was communicating extraordinary forward guidance in the form of a conditional commitment to keep interest rates unchanged.9

A principle we can draw from this experience is that policy should respond more aggressively to negative shocks when rates are near the ELB than when they are far from it, all else being equal. Policy is also asymmetric in that it responds more aggressively to negative shocks than to positive shocks. And the reality is that we will be closer to the ELB more often than in the past because of a lower neutral rate of interest. Based on our assessment that the ELB in Canada is around -50 basis points, the probability of being at the ELB is around 8 per cent, approximately five times higher than it was 15 years ago.10

While this may be the optimal strategy, central banks could potentially achieve lower volatility of inflation and less buildup of financial vulnerabilities from credit if they were more confident about the effectiveness of unconventional policy tools. That is why it is so important that we refine the design of unconventional policy tools such as quantitative easing and deepen our understanding of the strength of their transmission to the real economy.

When uncertainty leads to caution

There are also times when uncertainty can lead to caution or patience. This is my second example. Just three weeks ago, the Bank decided to leave the policy rate unchanged. We said at the time that while less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate.

One of the motivations for caution is that inflation has been in the lower end of the inflation target bands of 1 to 3 per cent for quite some time. To see why this might matter, it helps to recall why the inflation target bands were chosen in the first place. The 1 to 3 per cent range primarily reflects the recognition that there is a degree of imprecision associated with inflation targeting.11

While some normal fluctuations can be expected within the target range, central banks may become disproportionately concerned about the prospect that inflation might fall outside the range. This is referred to in the economic literature as a “kinked loss function.”12 In plain language, it means that the central bank puts a greater weight on the downside risks when inflation is low to begin with. What is important to note about this line of reasoning is that it also applies to situations in which inflation is close to the upper part of the range.

Even if inflation were closer to the middle of the range and the ELB was not a consideration, caution might still be in order. In Canada, one reason for caution is that there is currently greater uncertainty about the strength of the monetary policy transmission mechanism. While higher household debt has likely heightened the sensitivity of spending to interest rate increases, it is difficult at this juncture to know by how much. There is also uncertainty about the interaction of interest rate increases with the recent tightening of macroprudential rules.13 The logic behind caution in this case is often referred to as Brainard’s principle of attenuation: policy should change less than it would if the central bank were more sure of the effect on spending.14

Another reason for caution—in this case more of a “wait-and-see” approach—is related to a desire to avoid having to reverse policy direction abruptly in the future.15 Since the adoption of fixed announcement dates in November 2000, the Bank of Canada has changed its policy interest rate 46 times, and only four of these were reversals within a six-month window. If you look at the behaviour of other central banks, it is very similar—so it is not much of a surprise that other central banks have also cited uncertainty as a rationale for waiting.16

For the business people in the room who have considered large capital expenditures, this reasoning must sound familiar. It can be useful to have the option value of waiting until you are more sure of the returns. This is particularly true if the investment is largely irreversible.

As with investment, fixed costs of changing policy direction may explain a central bank’s aversion to reversals and motivate a wait-and-see approach to policy. That said, it is unclear how costly policy reversals are for the real economy. It is possible that the perceived costs are self-reinforcing because reversals are so rare that they are viewed as policy errors when they do occur, rather than as a sensible reaction to new information.

Uncertainty Is Not a Reason for Paralysis in Decision Making

Now for my final point. Uncertainty is not a reason for paralysis in decision making. Whether it is about how aggressive or how cautious policy should be, getting the dosage right demands sound judgment about complex trade-offs. Just think about my last example about the wait-and-see approach. In central banking, there is no equivalent to the “late-mover advantage.” But even for a business, delaying investment too long leaves it vulnerable to the competition.

Checking the logic of this judgment through formal modelling exercises is good practice to inform our assessment of these trade-offs and to support decisions that stand the test of time.

That is why research efforts at the Bank are focused on some key areas. In particular, we are working to better model the dynamics between the real and financial sides of the economy, particularly the triggers for financial instability. This continues to be a blind spot. Related to this is work to measure the effectiveness of macroprudential measures and unconventional monetary policy tools. There is also significant work under way studying inflation and wage dynamics, as Governor Stephen Poloz spoke about last week in Montréal. A longer-term objective relates to incorporating the effects of uncertainty that households and businesses face in their own decision making. These efforts will help improve base-case projections.

We supplement these projections with model-based risk scenarios. For example, Bank staff recently published an alternative scenario in which the economy’s potential output grows faster than projected.17 We are also focusing our efforts on designing policy rules that are more robust to the types of uncertainty we encounter every day.

Strengthening the policy framework will support not only sound decision making, but also transparency. If you want to understand why policy actions were taken and what actions might be in store, you need to understand both the Bank’s base-case projection and how the Bank has factored uncertainty into its policy decisions.

We have numerous ways to explain these two elements.18 These range from discussion in the risk section of the Bank’s quarterly Monetary Policy Report (MPR) to the opening statement at the press conference that follows its release. We also have speeches like this one today. We have decided, starting next year, to advance the timing of speeches providing economic updates to align them more closely with the fixed announcement dates between MPRs. These speeches will be given by Governing Council members and will be followed by a question-and-answer session with media. Of course, no communications tool will be effective if we do not reach our audience. That is why we continue to advance our digital strategy to communicate in ways that match how people prefer to receive information these days.

Conclusion

It is time to wrap up. Uncertainty is a fact of life for all of us. Central bankers have well-established methods to deal with uncertainty in the conduct of monetary policy.

When uncertainty is taken seriously, it can lead to asymmetric monetary policy responses. I explained why policy may respond to negative shocks more aggressively than usual when near the effective lower bound on interest rates. I also explained why, during periods of uncertainty like today, a cautious approach may be prudent.

Caution has its limits, because there are complex trade-offs involved, including those related to financial stability. The Bank of Canada is investing heavily in research that will help better quantify these trade-offs and the interaction with macroprudential policy measures.

As we move forward, it will be critical that people like you and other central bank watchers stay engaged and share your own ideas on how to further strengthen the monetary policy framework under uncertainty.

Notes

1. R. Mendes, S. Murchison and C. Wilkins, “Monetary Policy Under Uncertainty: Practice Versus Theory,” Bank of Canada Staff Discussion Paper No. 2017-13 (November 2017). [←]
2. The inflation-control agreement is renewed every five years. For the latest agreement, see the Joint Statement of the Government of Canada and the Bank of Canada on the Renewal of the Inflation-Control Target. [←]
3. See the appendix in the October 2017 Bank of Canada Monetary Policy Report for details on recent enhancements to ToTEM, one of the Bank of Canada’s main projection models. [←]
4. In most cases, central bank models do not use fully optimal rules for projection purposes, so the resulting policy path implied by these models is not certainty- equivalent, in the strict sense. Here, we mean that by construction the parameters and functional forms of the policy rule, however chosen, do not change as uncertainty is introduced. [←]
5. Certainty equivalence applies to linear-quadratic frameworks. The central bank is assumed to have a zone quadratic loss function (i.e., it seeks to minimize inflation from the target and cares equally about deviations above and below the target), the model is linear and shocks are additive (i.e., they do not change the underlying structure of the economy). [←]
6. See Box 1, “Potential Implications of a Rise in Trade Protectionism” in the April 2017 Bank of Canada Monetary Policy Report. [←]
7. The intuition behind this is demonstrated clearly in R. Kato and S.-I. Nishiyama, “Optimal Monetary Policy When Interest Rates Are Bounded at Zero,” Journal of Economic Dynamics and Control 29, no. 1–2 (2005): 97–133. [←]
8. For the Bank of Canada’s unconventional monetary policy toolkit, see the Framework for Conducting Monetary Policy at Low Interest Rates published in December 2015. [←]
9. In its announcement on April 23, 2009, the Bank made the following conditional commitment: “Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.” [←]
10. Some estimates for the United States are as high as 40 per cent. Much of this difference with Canada can be explained by differences in methodology rather than fundamentals. For example, raising the assumption of the ELB to zero and reducing the degree of interest rate smoothing to zero in the policy rule increases the estimate of the probability to around 25 per cent for Canada. For an explanation on how the probability of being at the ELB is calculated, see J. Dorich, N. Labelle St-Pierre, V. Lepetyuk and R. Mendes, “Could a Higher Inflation Target Enhance Macroeconomic Stability?” Bank of Canada Staff Working Paper (forthcoming). [←]
11. See S. S. Poloz, “Understanding Inflation: Getting Back to Basics” (speech to CFA Montréal and Montreal Council on Foreign Relations, Montréal, Quebec, November 7, 2017). [←]
12. An example of this would be a zone quadratic loss function. See A. Orphanides and V. Wieland, “Inflation Zone Targeting,” European Economic Review 44, issue 7 (June 2000): 1351–87. [←]
13. See Guideline B-20 issued by the Office of the Superintendent of Financial Institutions. [←]
14. See W. Brainard, “Uncertainty and the Effectiveness of Policy,” American Economic Review 57, no. 2 (1967): 411–25. For an excellent discussion of this principle and its limitations, see V. R. Reinhart, "Making Monetary Policy in an Uncertain World," Proceedings, Economic Policy Symposium, Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming (2003): 265–74. [←]
15. This is shown in a formal economic model in Mendes, Murchison and Wilkins, “Monetary Policy Under Uncertainty.” [←]
16. A. Al-Nowaihi and L. Stracca, “Non-Standard Central Bank Loss Functions, Skewed Risks and Certainty Equivalence,” European Central Bank Working Paper No. 129 (March 2002). [←]
17. J. Yang, B. Tomlin and O. Gervais, “Alternative Scenario to the October 2017 MPR Base-Case Projection: Higher Potential Growth,” Bank of Canada Staff Analytical Note No. 2017-18 (October 2017). [←]
18. See S. Kozicki and J. Vardy, “Communicating Uncertainty in Monetary Policy,” Bank of Canada Staff Discussion Paper No. 2017-14 (November 2017). [←]

FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/remarks-151117.pdf

BANK OF CANADA. November 16, 2017. Bank of Canada Review - Autumn 2017

Is shale oil production in the United States a factor in the 2014 oil price decline? Which methods of payment are commonly accepted by merchants in Canada? Bank researchers share their insights on these topics. They also provide an update on the neutral rate of interest as well as on changes to the Bank’s operational framework for market operations.

The Bank of Canada Review is published twice a year. Articles undergo a thorough review process. The views expressed in the articles are those of the authors and do not necessarily reflect the views of the Bank.

The contents of the Review may be reproduced or quoted, provided that the authors and the publication, with its date, are specifically cited as the source.

FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/boc-review-autumn2017.pdf

Factors Behind the 2014 Oil Price Decline: Reinhard Ellwanger, Benjamin Sawatzky, Konrad Zmitrowicz

Oil prices have declined sharply over the past three years. While both supply and demand factors played a role in the large oil price decline of 2014, global supply growth seems to have been the predominant force. The most important drivers were likely the surprising growth of US shale oil production, the output decisions of the Organization of the Petro-leum Exporting Countries and the weaker-than-expected global growth that followed the 2009 global financial crisis.

FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/boc-review-autumn2017-ellwanger.pdf

Acceptance and Use of Payments at the Point of Sale in Canada: Ben Fung, Kim Huynh, Anneke Kosse

Merchants universally accept cash. Consumers widely hold cash but also carry debit and credit cards. The cost of using a method of payment has only a small influence on which method consumers use. Large merchants accept all payments, while only two-thirds of small and medium-sized businesses accept credit cards. Merchants report that credit cards are the costliest payment method compared with cash and debit cards. However, costs are not the only consideration. Merchant acceptance of credit accounts for the many con-sumers that want to use credit cards. This interaction between consumers and merchants is known as network externalities.

FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/boc-review-autumn2017-fung.pdf

An Update on the Neutral Rate of Interest: José Dorich, Abeer Reza, Subrata Sarker

The neutral rate serves as a benchmark for measuring monetary stimulus and provides a medium- to long-run anchor for the real policy rate. Global neutral rate estimates have been falling over the past few decades. Factors such as population aging, high corporate savings, and low trend productivity growth are likely to continue supporting a low global neutral rate. These global factors as well as domestic factors are exerting downward pres-sure on the Canadian real neutral rate, which is estimated to be between 0.5 to 1.5 per cent. This low neutral rate has important implications for monetary policy and financial stability.

FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/boc-review-autumn2017-dorich.pdf

An Initial Assessment of Changes to the Bank of Canada’s Framework for Market Operations: Kaetlynd McRae, Sean Durr, David Manzo

The Bank of Canada made changes to several of the tools that make up its framework for operations and liquidity provision. These changes came about after a comprehensive re-view of the framework and are designed to help the Bank better achieve its objectives of reinforcing the target for the overnight rate and supporting the well-functioning of Cana-dian financial markets under normal market conditions.

FULL DOCUMENT: http://www.bankofcanada.ca/wp-content/uploads/2017/11/boc-review-autumn2017-mcrae.pdf

The Globe and Mail. Bloomberg. 16 Nov 2017. BoC predicts growth will drive inflation over long term
GREG QUINN

Bank of Canada senior deputy Governor Carolyn Wilkins said inflation pressures will be driven more over time by the country’s economic growth, rather than shortterm swings in energy prices.
Ms. Wilkins, speaking on Wednesday in New York during a Bloomberg Television interview, said price pressures should start to rise as the economy continues to gather steam. She reiterated the BoC will move cautiously on any future rate increases.
“Growth on the other hand, you can look at very carefully as an indication of where the economy might be going in the future, where those wage pressures could be, how the labour market is going to perform and that is what is going to be a longer-term driver of inflation pressures in the future,” Ms. Wilkins said, adding about 75 per cent of the variability in total inflation is attributable to consumer energy prices.
Policy makers raised Canada’s benchmark overnight lending rate to 1 per cent, with consecutive hikes in July and September, to curb the fastest growth among Group of Seven countries and an economy close to full potential.
Since the second increase, Ms. Wilkins and Governor Stephen Poloz have said further moves will depend on incoming data, as a stronger dollar and global slack keep inflation below their 2-percent target.
Canada’s economy was “progressing quite strongly” earlier this year as policy makers raised rates, she said.
“In October, we were clear that we think, over time, that less monetary stimulus is likely to be appropriate, and at the same time, we were going to be cautious about it,” she said.
There is little sign of strong inflation pressures at the moment. The central bank isn’t forecasting a return to the 2-per-cent target until the second half of 2018.
“As we look forward and we see that slack in the Canadian economy is being absorbed, well then, that source of drag on inflation is going to go away,” Ms. Wilkins said.

REUTERS. NOVEMBER 16, 2017. Canada's lower neutral rate may encourage risk-taking: central bank

OTTAWA (Reuters) - Canada’s lower neutral interest rate reduces the amount of monetary stimulus that the Bank of Canada can provide and may encourage excessive risk-taking, the central bank said on Thursday.

A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada, May 23, 2017. REUTERS/Chris Wattie
The bank in April lowered its estimate of the neutral rate, at which the economy can work at full capacity with stable inflation, to between 2.5 percent and 3.5 percent, down from a range of 3 percent to 4 percent in 2014.

“This could pose some challenges for conducting monetary policy and ensuring financial stability,” the bank said in a research paper.

Besides monetary policy implications, the lower neutral rate could encourage excessive risk-taking.

“A low interest rate environment may increase the incentives for banks and other financial institutions to take on more risks ... (or) necessitate a shift into higher-yielding, riskier instruments,” the bank said.

A life insurer, for example, might do so because it could not meet its obligations by investing in government bonds or other highly rated assets.

The lower neutral rate also reduces the amount of conventional stimulus, typically interest rate reductions, that the bank can provide without hitting the effective lower bound, the bottom for its interest rate. As a result, it would be more likely that the benchmark interest rate, or policy rate, would be constrained by the ELB, estimated at -0.5 percent, the bank said.

The neutral rate is considered the anchor for the central bank’s policy rate. The Bank of Canada has hiked rates twice in recent months to return borrowing costs to more normal levels from near-record lows.

The lower neutral rate suggests that when this happens, the policy rate will probably converge to lower levels than those seen before the financial crisis.

The bank said estimates of the global neutral rate were falling steadily over the past few decades, in part because of an aging population and a worldwide pattern of higher savings and lower investment.

Reporting by Andrea Hopkins; Editing by Lisa Von Ahn

EMPLOYMENT

REUTERS. NOVEMBER 16, 2017. Canada shed 5,700 jobs in October, according to new ADP report

OTTAWA (Reuters) - Canadian companies cut 5,700 workers from their payrolls in October, with the loss concentrated in the goods-producing sector, according to a new employment report from ADP released on Thursday.

The report, jointly developed with Moody’s Analytics, showed October’s decline in total non-farm payrolls was a partial reversal of September’s gain of about 43,000 jobs.

It was the first Canadian release from payrolls processor ADP, which publishes a similar private sector jobs report in the United States that is closely watched by markets.

The figures differed substantially from the 35,300 October job gain reported by Statistics Canada earlier this month.

The ADP report showed job losses of 8,200 positions in the natural resources and mining sector last month, as well as a decline of 7,200 jobs in construction.

Overall, the Canadian economy has added more than 250,000 jobs so far this year, the report said.

“As unemployment sinks lower available workers will continue to grow scarce,” said Ahu Yildirmaz, co-head of the ADP Research Institute

Reporting by Andrea Hopkins and Leah Schnurr; Editing by Steve Orlofsky

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LGCJ.: