CANADA ECONOMICS
AVIATION
The Globe and Mail. 14 Dec 2017. ARTICLE. New plan for fighter-jet purchase is sensible – but risky
ELINOR SLOAN, Professor of international relations at Carleton University and a fellow of the Canadian Global Affairs Institute
The latest twists in the Canadian fighter-jet-replacement saga make sense only if – a big if – they actually play out according to plan.
On Tuesday, the federal government announced Canada will buy 18 Australian F-18s of the same vintage as Canada’s current fleet of 77 fighter aircraft, to be delivered starting in January, 2019. It also launched a competition to replace all the F-18s with 88 new fighter aircraft, to begin arriving in 2025.
According to senior military officials, Canada’s fighter fleet is not big enough to meet its NORAD and NATO obligations at the same time. The exact numbers required are classified but it is conceivable they have gone up in the past few years in response to Russian military activity. Buying F-18s that fit into Canada’s existing fighter maintenance structure, that our pilots know how to fly, and that will not leave Canada with an essentially brand-new second fleet of fighters when the future fighter arrives, is a more reasonable and less costly interim solution than the now-shelved Super Hornet idea announced a year ago.
Meanwhile, it has been more than two years since the Prime Minster mandated the Ministers of National Defence and Public Services and Procurement to launch an open and transparent competition to replace the CF-18s, the step they finally took on Tuesday. Much time was spent developing Strong Secure Engaged, the defence policy released in June, 2017, which determined Canada needs 88 fighters. Next steps are to talk to industry and fighter aircraft manufacturers, develop a statement of requirements, release a request for proposals in 2019, accept bids at some point and award a contract in 2022.
There is little room for manoeuvre. The “on time” delivery date of 2025 for the new fighter jets is also the latest date the F-18s, already decades old, will be able to fly – though it has been suggested they could be flown beyond this date if necessary.
This is a risky approach in a system that has a track record of significant delays in major military procurements. Witness Canada’s aging supply ships that our navy had to decommission long before a replacement will be in the water. The fighter replacement project itself dates back to at least 2010, when the Conservatives promised new fighters by 2016.
Under Canada’s defence procurement strategy, Public Services and Procurement Canada evaluates bids based on technical merit grounded in military requirements, price, and Industrial and Technological Benefits, where companies must prove that they can generate business in Canada that is equal to the value of the contract. The Tuesday announcement adds the new criterion that the winning bidder must pass a broader “economic harm test.” What this will look like in practice is yet to be defined. It is driven by the Boeing-Bombardier dispute and a desire to ensure that a winning bid is good not just for the defence industry but for Canadian national economic interests. Adding yet another assessment point could make a lengthy procurement process still longer.
Two years ago, the Trudeau government entered office stating flat out that Canada would not buy the Lockheed Martin F-35. One year ago, it announced Canada would buy the Boeing Super Hornet as an interim fighter. Tuesday it announced Canada will buy used F-18s from Australia instead, and launched a competition that includes a provision seen as directed at Boeing. This bewildering series of developments has ended in a sensible but risky plan. Its success is entirely dependent on meeting stated timelines, something for which past experience does not bode well.
Failing this, Canada’s air force could find itself in the same unprecedented situation as the navy; that is, years with a loss in capability altogether and with it the country’s ability to defend itself.
REUTERS. DECEMBER 13, 2017. Lockheed Martin may top Boeing in race to supply Canada jets: experts
David Ljunggren
OTTAWA (Reuters) - Canada’s decision to make it harder for Boeing Co BA.N to win a major jet order hands rival plane maker Lockheed Martin Corp LMT.N an advantage in capturing the contract, defense experts said on Wednesday.
That would mark a reversal in Lockheed’s fortunes after Liberal leader Justin Trudeau campaigned in 2015 on a promise not to buy the firm’s F-35 stealth fighter.
Ottawa on Tuesday scrapped plans to buy 18 Boeing Super Hornets and made clear the company would not win a contract for 88 jets unless it dropped a trade challenge against Canadian planemaker Bombardier Inc BBDb.TO.
Officials estimate the cost of the jets at between C$15 billion ($11.7 billion) and C$19 billion and say it is the biggest investment in the air force in 30 years.
Last week Boeing made clear it would not back down in its fight against Bombardier, which it accuses of trying to dump airliners on the U.S. market.
The firm may not even launch a bid for the 88 jets, the first of which are due to be delivered in 2025.
That leaves the F-35, a new aircraft, up against two European rivals which first flew in the 1990s: the Eurofighter Typhoon AIR.PA BAES.L LDOF.MI and Dassault Aviation SA’s AVMD.PA Rafale.
One defense source noted that the European jets were likely to become obsolete by around 2040, at which point they could no longer incorporate the latest technologies.
“The longer this process plays out, the narrower the government’s options become, and the prospects for a European jet become even dimmer,” said the source, who declined to be identified given the sensitivity of the situation. The Super Hornet first flew in 1995.
A second defense source said Boeing now had little chance of winning the 88-plane contract and noted Canada’s air force had long sought an American jet so it could operate easily with the U.S. military.
Neither source works for a company that might make a bid.
The official opposition Conservative Party accused Trudeau of bungling the matter.
“Will the prime minister take responsibility and admit we are never going to get new jets?” Conservative leader Andrew Scheer said in the House of Commons.
Lockheed Martin said it was confident the F-35 was superior to older competitors. Boeing described the Super Hornet as “the low-risk, low-cost approach” which could serve Canada’s needs well into the future.
Canada belongs to the nine-nation consortium that helped fund development of the F-35, which has been hit by years of delays and cost overruns.
Trudeau initially opposed the F-35 on the grounds that it was too costly, but Ottawa has since softened its line.
Officials insist the competition will be open and say no company will be excluded. Yet in a clear swipe at Boeing, ministers say any bidder deemed to have harmed Canada’s economy will be at a distinct disadvantage.
Boeing accuses Bombardier of imitating Airbus by trying to muscle into the U.S. market. People familiar with Boeing say the strategic importance of defending its core passenger jet business outweighs the fighter dispute.
Jerry Dias, president of the Unifor union, said in a phone interview he did not think Boeing would react by cutting jobs. Unifor represents 1,300 workers at a Boeing plant in Winnipeg.
Boeing says its operations support 17,500 Canadian jobs.
($1=1.2865 Canadian dollars)
Addtional reporting by Allison Lampert in Montreal; Editing by David Gregorio and Cynthia Osterman
BOMBARDIER
BOMBARDIER. December 14, 2017. Bombardier Announces 2018 Guidance, Targeting Revenue Growth, Continued Earnings Improvement and FCF Breakeven
- Targets 2018 revenue growth of approximately $1B over 2017 guidance
- Anticipates EBIT before special items(1) to grow to $800M-$900M in 2018
- Aims to improve free cash flow(1) by approximately $1.0B and to reach free cash flow breakeven in 2018, plus or minus $150M
- Turnaround plan on track with clear path to achieve 2020 financial goals
- Over next three years, objective to increase revenues by $4.0B and for EBITDA before special items(1) and EBIT before special items to more than double
- 2020 free cash flow objective in the range of $750M to $1.0B
New York, NY, USA - All amounts in this press release are in U.S. dollars unless otherwise indicated.
Refer to the Caution Regarding Forward-Looking Statements, Caution Regarding Non-GAAP Measures and Assumptions sections at the end of this press release.
Bombardier (TSX: BBD.B) today released its 2018 guidance and confirmed that its five-year turnaround plan remains on track. The Company also affirmed its 2017 guidance, as revised with the announcement of its third quarter 2017 results.
“As we approach the half-way point of our five-year turnaround plan, we continue to meet our commitments and build a strong foundation for generating sustainable profit growth,” said Alain Bellemare, President and Chief Executive Officer, Bombardier Inc. “We remain very much on track to achieve our 2017 guidance, our 2018 free cash flow goal, and see a clear path to deliver on our 2020 objectives.”
For 2018, Bombardier is targeting revenues in the range of $17.0 billion to $17.5 billion,(2) which represents a year-over-year increase of approximately $1.0 billion over 2017 guidance, at the mid-point of the range. This growth is expected to be driven by the ramp-up of key projects at Bombardier Transportation and higher C Series aircraft deliveries.
With the Company’s transformation efforts driving stronger performance across the portfolio, EBITDA before special items for 2018 is anticipated to be in the range of $1.15 billion to $1.25 billion.(2) For the same year, EBIT before special items is anticipated to be between $800 million and $900 million,(2) representing an improvement of approximately 20% over 2017 guidance, at the mid-point of the range, assuming the adoption of IFRS 15 standards.(3)
Bombardier is targeting to achieve free cash flow breakeven in 2018, plus or minus $150 million,(2) mainly driven by improving working capital investments and lower development costs as the Company’s heavy investment cycle comes to an end with the Global 7000 expected to enter service in the second half of 2018. Breakeven free cash flow represents an improvement of approximately $1.0 billion over Bombardier’s 2017 guidance.
“There is tremendous value in the Bombardier portfolio and we are confident that we have the right strategy and team to fully unleash this value for our customers and shareholders,” Mr. Bellemare continued. As we close out 2017, we remain focused on execution and driving transformation across the portfolio to achieve our 2020 objectives.”
Over the next three years, the Company’s objective is to grow revenues by $4.0 billion, which represents a 7% compound annual growth rate. Over the same period, Bombardier’s objective is to more than double EBITDA before special items to more than $2.25 billion, and to achieve EBIT before special items in excess of 8%, or $1.6 billion. The Company also aims to deliver free cash flow of $750 million to $1.0 billion by 2020.
The Company will provide an update on its turnaround plan and discuss its 2018 guidance and 2020 objectives at its annual Investor Conference later this afternoon. A live webcast of Bombardier’s Investor Day, along with the corresponding presentation, will be available on the Company’s website at www.ir.bombardier.com. The webcast will begin at 3:00 pm EST on Thursday, December 14, 2017 and will be available on the website afterwards.
Following the closing of its C Series partnership with Airbus, Bombardier will deconsolidate the C Series program. While 2018 guidance assumes the continued consolidation by the Company of the C Series program for the entire year, 2020 objectives reflect the deconsolidation of the C Series program. Should the closing of the C Series partnership with Airbus occur before the end of 2018, the resulting deconsolidation will have an impact on the Company’s reported results.
It should also be noted that Bombardier’s 2018 guidance and 2020 objectives are both based on the adoption of IFRS 15 standards. Under IFRS 15, the Company’s 2017 EBIT guidance before special items would increase from at least $630 million to at least $700 million.
2018 Guidance and 2020 Objectives
| 2018 Guidance(2) | 2020 Objectives | ||
|---|---|---|---|
| Consolidated | Revenues | $17.0 billion-$17.5 billion |
>$20.0 billion
C Series deconsolidated
|
EBITDA
before special items
| $1.15 billion - $1.25 billion(4) | >$2.25 billion | |
EBIT
before special items
| $800 million -$900 million(4) | >$1.6 billion | |
| Free cash flow |
Breakeven
±$150 million | $750 million -$1.0 billion | |
| Transportation | Revenues |
~$9.0 billion
at 1.15 USD/€ |
>$10.0 billion
at constant exchange rates
|
EBIT margin
before special items(1)
| >8.5% | >9% | |
| Business Aircraft | Revenues | ≥$5.0 billion | >$8.5 billion |
EBIT margin
before special items
| ≥8.0% | 8-10% | |
| Deliveries | ~135 deliveries | ||
| Commercial Aircraft | Revenues | ~$2.7 billion |
~$5.0 billion
with C Series
~$1.5 billion
C Seriesdeconsolidated
|
EBIT
before special items
| ~$(350) million | Profitable | |
| Deliveries |
~40 C Series;
~35 CRJ Series/Q400
| ||
| Aerostructures and Engineering Services | Revenues | ~$2.0 billion | >$2.25 billion |
EBIT margin
before special items
| >8.5% | 9-11% | |
REUTERS. 14 DE DEZEMBRO DE 2017. Bombardier prevê receita abaixo das estimativas para 2018
(Reuters) - A fabricante canadense de aviões e trens Bombardier estimou nesta quinta-feira que a receita em 2018 será de 17 bilhões a 17,5 bilhões de dólares, abaixo das expectativas de Wall Street.
Analistas, em média, esperavam receita de 18,37 bilhões de dólares, de acordo com levantamento Thomson Reuters I/B/E/S.
THE GLOBE AND MAIL. REUTERS. DECEMBER 14, 2017. Bombardier hopes for $1-billion revenue bump in 2018, still below Street estimates
YASHASWINI SWAMYNATHAN
Canadian plane and train maker Bombardier Inc, in the middle of a five-year plan to turn around its ailing business, on Thursday forecast 2018 revenue that came in well short of analysts' estimates.
The company said it expects revenue of $17.0-billion to $17.5-billion in 2018, well below the average analyst estimate of $18.37-billion, according to Thomson Reuters I/B/E/S.
As part of restructuring plans, Bombardier is cutting costs to boost margins after years of heavy investments on two new aircraft programs led it to consider bankruptcy in 2015.
The Montreal-based company said it expects free cash flow to break even in 2018, plus or minus $150-million, and earnings before interest, tax and special items to be between $800-million and $900-million.
The company is scheduled to hold its investor day at 3:00 p.m. ET.
In October, Bombardier agreed to sell a controlling stake in its troubled C Series jetliner program to Airbus SE, a move it said would boost sales, cut costs and give it a possible way out of a potentially damaging trade dispute with Boeing Co .
In its commercial aircraft unit, Bombardier said it was targeting the delivery of 40 C Series and 35 CRJ and Q400 aircraft in 2018, up from the overall 50 it has targeted this year. However, it expects the business to book a loss of $350-million before interest and tax.
The company also set a target of more than $20-billion in revenue for 2020, which excludes the contribution of C Series.
Bombardier's shares have risen more than 51 per cent this year. Shares of companies listed on the Toronto Stock Exchange do not trade before markets open.
REUTERS. DECEMBER 14, 2017. Bombardier's 2018 revenue forecast disappoints, shares fall
Yashaswini Swamynathan
(Reuters) - Bombardier Inc said on Thursday it was hopeful that it might turn free cash flow positive next year even as the ailing company forecast 2018 revenue that fell far short of expectations.
A Bombardier flag flutters amidst storm clouds at the Singapore Airshow at Changi Exhibition Center February 18, 2016. REUTERS/Edgar Su
Shares in Bombardier were down 1.9 percent in late morning trading on the Toronto Stock Exchange.
The loss-making plane and train maker said it expected to deliver 25 more commercial aircraft next year, compared with 2017 projections.
“The turnaround story continues to unfold as laid out by management, which incrementally continues on the path to rebuilding credibility,” AltaCorp Capital analyst Chris Murray wrote in a note.
Bombardier is in the middle of a five-year turnaround plan to cut costs and boost margins after years of heavy investments in two aircraft programs pushed it to the brink of bankruptcy in 2015.
In October, the company agreed to sell a controlling stake in its CSeries jetliner program - struggling with ballooning costs and delays - to Airbus SE.
Bombardier said on Thursday that it expects free cash flow to breakeven in 2018, plus or minus $150 million, and earnings before interest, tax and special items between $800 million and $900 million.
The company expects revenue to rise to $17.0 billion to $17.5 billion next year.
While that is below the average market estimate of $18.37 billion, according to Thomson Reuters I/B/E/S, the midpoint of the range is $1 billion more than the revenue that Bombardier expects to earn this year, it said.
Bombardier, which is scheduled to hold its investor day at 3:00 p.m. ET on Thursday, said it was targeting revenue of more than $20 billion by 2020, excluding contribution from CSeries.
It projected 2020 EBITDA of $2.25 billion.
Citigroup analyst Stephen Trent said he expected revenue of $21.3 billion and EBITDA of $1.86 billion in 2020.
Bombardier said it expected to deliver 40 CSeries and 35 CRJ and Q400 aircraft in 2018, up from a total 50 it has forecast for this year. However, it expects the commercial aircraft business to book a loss of $350 million before interest and tax next year.
Bombardier’s shares have risen more than 51 percent this year, compared with a 10.6 percent rise in the Toronto Stock Exchange.
Reporting by Yashaswini Swamynathan and Allison Lampert; Editing by Saumyadeb Chakrabarty and Sayantani Ghosh
WTO
REUTERS. DECEMBER 13, 2017. WTO meeting ends in discord, ministers urge smaller-scale trade talks
Luc Cohen, David Lawder
BUENOS AIRES/WASHINGTON (Reuters) - The World Trade Organization failed to reach any new agreements on Wednesday, ending a three-day ministerial conference in discord in the face of stinging U.S. criticism of the group and vetoes from other countries.
The stalemate dashed hopes for new deals on e-commerce and curbs to farm and fisheries subsidies and raised questions about the body’s ability to govern increasingly disputed global trade.
The frustrations led some ministers, including U.S. Trade Representative Robert Lighthizer, to suggest that negotiations among smaller groups of “like-minded” WTO countries were a better approach going forward.
“We have not achieved any multilateral outcomes,” European Union Trade Commissioner Cecilia Malmstrom told a news conference. “The sad reality is that we did not even agree to stop subsidizing illegal fishing.”
She said the meeting laid bare one of the WTO’s biggest deficiencies - that all agreements must have the unanimous consent of all 164 member countries. She said the United States was partly to blame but that other countries also blocked progress.
WTO Director-General Roberto Azevedo added that WTO members needed to do some “real soul searching” about the way forward and realize they cannot get everything they want.
“Progress was going to require a leap in members’ positions,” Azevedo said at the event’s closing ceremony. “We didn’t see that.”
He said U.S. moves to block WTO appeals judges, which could disrupt the body’s dispute settlement system, were not discussed as a formal topic, but several ministers voiced concerns in statements at the conference.
The failure to agree on new deals means that talks on the same trade topics will continue. WTO delegates agreed to set a new goal for a reaching a comprehensive fisheries subsidy by the time of the next ministerial conference in 2019.
Trade ministers instead emphasized the WTO’s post-conference work programs, such as efforts to improve market efficiency, curb excess industrial capacity and improve subsidy transparency.
‘PLURILATERAL ARRANGEMENTS’
Malmstrom said “short-term plurilateral arrangements within the WTO framework” were the best way forward. Two such arrangements came together at the Buenos Aires conference.
On Wednesday, some 70 members, including the United States, European Union and Japan, pledged to forge ahead with negotiating rules on electronic commerce after a broader deal among the full membership failed. Absent from the group were China, India, Vietnam and Indonesia.
The EU and Japan joined the United States on Tuesday in vowing to combat market-distorting policies, such as those pervasive in China that have fueled excess industrial capacity, including subsidies for state-owned enterprises and technology transfer requirements.
“The potential focus on plurilateral negotiations between like-minded countries is a natural and positive outcome, if it turns out to bear fruit,” said Chad Bown, a senior fellow and trade expert at the Peterson Institute for International Economics in Washington.
Bown said a good template would be the 1996 WTO Information Technology Agreement, which initially had just 29 countries lowering tariffs on IT products. That has since expanded to 82 countries covering 97 percent of trade in the sector.
The WTO conference’s chair, former Argentine Foreign Minister Susana Malcorra, defended the WTO’s need for unanimity among its large and unruly membership, saying it was the still the best forum to deal with trade disputes.
“Let’s better work to strengthen WTO, because the alternative is the jungle,” she said.
AT FIRST, “AMERICA FIRST”
The conference began with Lighthizer setting an acrimonious tone with sharp criticism of the WTO, telling ministers on Monday that it was impossible to negotiate new rules while many of the current rules were not being followed, and that the WTO was losing its focus and becoming too litigation-focused.
Driven by President Donald Trump’s “America First” strategy and a preference for bilateral deals, the United States had pushed against ministers drafting a perfunctory ministerial that included references to the centrality of the global trading system and to trade as a driver of development. The statement was ultimately blocked.
Reporting by Luc Cohen in Buenos Aires and David Lawder in Washington; Additional reporting by Eliana Raszewski in Buenos Aires; Editing by Andrew Hay and Peter Cooney
NAFTA
REUTERS. DECEMBER 13, 2017. Mexico sees possible EU trade deal as NAFTA talks drag on
Luc Cohen
BUENOS AIRES (Reuters) - Mexico and the European Union could reach a framework for a trade deal by the end of the year, though differences remain over agricultural market access, Mexican Economy Minister Ildefonso Guajardo said on Wednesday.
The two sides are currently in technical meetings and preparing for higher-level talks in Brussels next week, said Guajardo, who noted that efforts to renegotiate the North American Free Trade Agreement (NAFTA) remained hung up on a U.S. proposal to increase North American content in autos.
Mexico has been aiming to reduce its reliance on U.S.
imports and exports since the election of U.S. President Donald Trump and the start of the NAFTA talks.
“There is a possibility, but not a guarantee” of an “agreement in principle” by year-end, Guajardo said of an EU deal during an interview on the sidelines of the World Trade Organization ministerial conference in Buenos Aires
“That will depend on the technical discussions that the teams are having in Brussels to see if there are conditions to get the ministers together and close it out.”
Mexico and the 28-member bloc have an existing accord dating to 2000 that principally cut tariffs on industrial goods. The two parties agreed in 2015 to modernize their trade relations and held various rounds of talks last year.
The negotiations come as the EU seeks to signal its rejection of Trump’s more protectionist stance. It signed the world’s largest free trade accord with Japan last week, and is in talks with South American bloc Mercosur.
Mexico and the EU have reached agreements on areas like e-commerce, but agricultural market access and product origin labeling remain significant sticking points. The two sides have also not yet agreed on a mechanism for resolving investment disputes, Guajardo said.
“There are few items left, but they are significant,” he said.
Talks to rework NAFTA - which comprises the United States, Mexico and Canada - remain at an impasse over the U.S. proposal to raise the minimum threshold for North American content in autos to 85 percent from 62.5 percent over a three-year period.
Guajardo said Mexico was still “having difficulty seeing how this is possible.” But he said the government was discussing the degree and timeframe of possible changes to content percentages with the Mexican automobile parts industry.
“The goal is to have significant advances in the first quarter of 2018,” Guajardo said.
Reporting by Luc Cohen; Editing by Andrew Hay
US ECONOMY
FED. The Globe and Mail. 14 Dec 2017. OPINION. A new era of complications arrives at the U.S. Federal Reserve as Janet Yellen departs. U.S. Fed raises interest rates, but Yellen’s swan song carries a note of caution
DAVID PARKINSON, Columnist
In what was effectively her finale as head of the U.S. Federal Reserve, Janet Yellen belted out one more rendition of what has become her defining tune: an interest-rate hike. But this one sounded a little different – just enough to remind us that the Fed is heading into a new era as Ms. Yellen heads for the exit, one that will face some complications almost immediately.
ALEX WONG/GETTY IMAGES
Federal Chair Janet Yellen boosted the U.S. benchmark interest rate by a quarter point.
The basics of the Fed’s rate announcement Wednesday were pretty much par for the course: a universally expected quarter-percentage-point increase in the benchmark federal funds rate, to a range of 1.25 to 1.5 per cent, on the back of strong labour markets and solid economic growth; an encouraging outlook for the economy; the usual nagging concerns about lagging inflation.
Ms. Yellen basically gave the Fed’s monetary policy one last push on the course she has set for it – a slow, steady trip to return policy to “normal,” reversing the years of a highly stimulative position in the wake of the 2008-2009 financial crisis. Now she’ll turn the helm over to veteran Fed board member Jerome Powell, who takes over as chairman on Feb. 3.
(Ms. Yellen has one more ratesetting meeting, but it’s on Feb. 1, which is just two days before she turns in her keys. It would be poor form to stick the new guy with a last-minute rate move on the way out the door.)
Ms. Yellen will be remembered for setting in motion the unwinding of nearly a decade of Fed policy designed to keep the U.S. economy afloat in the long, difficult recovery from the financial crisis. She has presided over five rate hikes over the past two years, lifting the key federal funds rate from a precariously low zero-to-0.25-per-cent target range to a much more comfortable 1.25 to 1.5 per cent.
This fall, she launched the Fed’s “balance sheet normalization” process, which will gradually reverse the Fed’s massive build-up of bond holdings under its quantitative easing programs – the big tool it wielded to revive the ailing post-crisis economy when there was no more room to slash rates.
While Ms. Yellen has laid out the game plan for monetary policy’s eventual return to normal, most of the game has yet to be played. The first steps have really only occurred in the past 12 months – a period in which some pretty favourable conditions let the Fed get the normalization process off the ground with relatively few impediments. The labour market remains strong. The economy has been growing at an encouraging pace. Stock markets are at record highs. Consumer and business sentiment is high.
One of the biggest potential obstacles in the Fed’s path – Donald Trump – has been much less a factor in Ms. Yellen’s final year than many observers had feared. The President barely got his unorthodox economic platform off the ground.
Ms. Yellen made hay while the sun was shining, with four rate hikes and a balance-sheet normalization program since Mr. Trump’s election. But as Mr. Powell prepares to take over, the clouds are gathering.
The Fed’s statement accompanying Wednesday’s rate hike signalled as much. While the tone was broadly positive, the Fed made an important tweak in its characterization of the labour market, a central element to Fed rate policy. It went from saying that labour markets “will strengthen somewhat further,” to saying they will “remain strong.”
That might not seem like much. But it implies that with unemployment at a 17-year low, the Fed is seeing limited scope for the labour market’s boom to continue. At the very least, a moderation is on the way – in part because of the impact of the Fed’s rate increases. While Ms. Yellen argued that it’s in the Fed’s best interest to keep the labour market from overheating, it nevertheless suggests it will have to be wary of the impact of further increases on sustaining full employment, which is one of the Fed’s mandates.
And Mr. Powell can almost certainly count on a more complicated contribution to the economic landscape from Mr. Trump. Already, the administration’s tax-cut plan has tossed a wrench into the Fed’s economic assumptions; there is considerable disagreement at the Fed about just how the package will affect growth. Toss in the uncertainty surrounding the NAFTA trade negotiations, and the Fed may have to play wait-and-see on what could be some pretty disruptive policy changes in 2018.
Meanwhile, the Fed itself is undergoing a substantial reshaping. Not only is Mr. Powell taking the reins, but three of the seven spots on its board of governors are vacant. And the regular rotation of regional Fed governors on the Federal Open Market Committee will mean that four of the 12 members of that key rate-setting body will change at the Feb. 1 meeting. By the time all the changes are in place, the majority of the committee deciding on Fed rate policy will be different people.
There’s no reason to think that Mr. Powell will steer Fed policy on a different course from the one Ms. Yellen has plotted. Still, there are enough changes afoot to suggest that continuing what Ms. Yellen started might prove a little more complicated.
REUTERS. DECEMBER 13, 2017. Fed raises interest rates, keeps 2018 policy outlook unchanged
Howard Schneider, Lindsay Dunsmuir
WASHINGTON (Reuters) - The Federal Reserve raised interest rates on Wednesday but left its rate outlook for the coming years unchanged even as policymakers projected a short-term jump in U.S. economic growth from the Trump administration’s proposed tax cuts.
In an early verdict on the tax overhaul, Fed policymakers judged it would boost the economy next year but leave no lasting impact, with the long-run potential growth rate stalled at 1.8 percent. The White House has frequently said its tax plan would produce annual GDP growth of 3 percent to 4 percent.
The expected fiscal stimulus, coming on the heels of a flurry of relatively bullish data, cleared the way for the U.S. central bank to raise rates by a quarter of a percentage point to a range of 1.25 percent to 1.50 percent. It was the third rate hike this year.
But the Fed’s forecast of three additional rate increases in 2018 and 2019 was unchanged from its projections in September, a sign the tax legislation moving through Congress would have a modest, and possibly fleeting, effect.
The rate increase represented a victory for a central bank that has struggled at times to deliver on its promised pace of monetary tightening. It also allowed Fed Chair Janet Yellen, at her final press conference before her term ends in February, to signal an all-clear for the U.S. economy a decade after the onset of the 2007-2009 recession.
“At the moment the U.S. economy is performing well. The growth that we’re seeing, it’s not based on, for example, an unsustainable buildup of debt ... The global economy is doing well, we’re in a synchronized expansion,” Yellen said. “There is less to lose sleep about now than has been true for quite some time, so I feel good about the economic outlook.”
But the central bank’s projections also contained some potential dilemmas for incoming Fed chief Jerome Powell.
The Fed now envisions a burst of growth, ultra-low unemployment of below 4 percent in 2018 and 2019 and continued low interest rates - yet little movement on inflation.
Yellen said the persistent shortfall of inflation from the Fed’s 2 percent goal was the major piece of “undone work” she was leaving for Powell to figure out.
In its justification for Wednesday’s rate increase, which was widely expected by financial markets, the Fed’s policy-setting committee cited “solid” economic growth and job gains.
U.S. stocks extended gains after the release of the policy statement before ending mixed, while Treasury yields dropped. The dollar fell against a basket of currencies.
Traders of U.S. short-term interest rate futures kept bets the Fed would raise rates only twice next year.
The Fed now sees gross domestic product growing 2.5 percent in 2018, up from the 2.1 percent forecast in September. The pace of growth is expected to cool to 2.1 percent in 2019, slightly higher than the prior forecast of 2.0 percent.
“Changes in tax policy will likely provide some lift to economic activity in coming years,” Yellen said, adding that “the magnitude and timing of the macroeconomic effects of any tax package remain uncertain.”
The impact would “mainly” work to raise aggregate demand as households and companies have more money to spend, Yellen said, with “some potential” to raise investment and the economy’s longer-term growth.
INFLATION CONCERNS
The Fed also said on Wednesday it expected the nation’s unemployment rate would fall to 3.9 percent next year and remain at that level in 2019, well below what is considered to be full employment. It previously had forecast a jobless rate of 4.1 percent for those two years.
But inflation is projected to remain shy of the central bank’s goal for another year, with weakness on that front still enough of a concern that policymakers saw no reason to accelerate the expected pace of rate increases.
“It shows at least some members of the Fed don’t see any reason to keep hiking rates in an environment where the economy is growing more strongly but certainly not overheating and where inflation hasn’t become a problem and doesn’t look like it is going to be one,” said Kate Warne, investment strategist at Edward Jones.
Policymakers do see the federal funds rate rising to 3.1 percent in 2020, slightly above the 2.8 percent “neutral” rate they expect to maintain in the long run. That indicates possible concerns about a rise in inflation pressures over time
Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari dissented in the policy statement on Wednesday.
Reporting by Howard Schneider and Lindsay Dunsmuir; Additional reporting by Jason Lange in Washington, Jonathan Spicer in New York and Ann Saphir in San Francisco; Editing by Paul Simao
ENERGY
The Globe and Mail. 14 Dec 2017. Canadian crude tumbles amid pipeline bottlenecks. Crude: Rising production is again testing limits of pipeline space. Enbridge, Keystone restrictions occur as Suncor’s Fort Hills, other expansions gear up
JEFF LEWIS
Difference between spot prices of WCS and WTI, in U.S. dollars a barrel. Negative value indicates WCS is cheaper
$8
Oil sands crude is on sale, again.
Heavy crude prices turned sharply lower this week as restrictions on key export pipelines force surging production into storage, dealing a blow to government finances and corporate revenues.
Western Canadian select (WCS), a blend of conventional heavy crude and bitumen from the oil sands, has been under pressure from reduced flows on TransCanada Corp.’s Keystone pipeline and space rationing on Enbridge Inc.’s mainline system, which together move most Canadian crude to U.S. markets.
The restrictions come just as Suncor Energy Inc.’s $17-billion Fort Hills mine and other expansions gear up, pushing the discount on Canadian heavy crude to more than double levels seen earlier this year.
On Wednesday, WCS barrels for delivery in January changed hands for $29.75 (U.S.), a discount of $26.85 against U.S. benchmark West Texas intermediate, broker Net Energy Inc. said. Some lightly traded December volumes fetched $33 below WTI.
“Certainly a good majority of that is related to Keystone and some of the increase you’re starting to see at Fort Hills as well,” said GMP FirstEnergy analyst Martin King in Calgary.
Crude had already backed up in Alberta after a 5,000-barrel spill in South Dakota shut the Keystone pipeline for two weeks last month. The 590,000-barrel-a-day pipeline has restarted at reduced rates, but the company has not said when it would return to normal service.
Exports were also crimped after Enbridge said it would ration space for December on its Alberta-to-Wisconsin Line 67 pipeline, adding to heavy restrictions already in place.
The line carries 450,000 barrels a day (b/d).
Such constraints are seen as temporary, but they also point to major headwinds for Alberta producers and the provincial government, which relies on energy royalties to fund a big chunk of its budget.
“Canadian crudes have run into the perfect storm with issues plaguing several major pipelines,” said Michael Tran, an energy strategist at Royal Bank of Canada.
“This again underscores the structural issues surrounding lack of takeaway capacity.”
Oil sands crude trades at a discount because it must be shipped over long distances to refineries and because it requires more processing to turn into gasoline and diesel.
In 2013, the price gap, known as the differential, ballooned to $40 a barrel, prompting then-Alberta premier Alison Redford to warn of a $6-billion (Canadian) hole in the provincial budget.
Few are predicting a repeat scenario, but rising production is once again testing the limits of available pipeline space, forcing producers to pay more to ship excess barrels by train.
Alberta Premier Rachel Notley on Wednesday said the price weakness shows the industry urgently needs more export routes, including Kinder Morgan Canada Ltd.’s proposed Trans Mountain expansion to the West Coast.
“It highlights again and underlines why we need to get moving on the pipeline,” she told The Globe and Mail.
Enbridge sees its mainline system, which carries 2.85 million b/d, staying full as 850,000 b/d of new supply comes online through 2022, a top executive said this week.
Expansions include Suncor’s Fort Hills mine, which is expected to produce 20,000 to 40,000 b/d in the first quarter of next year, numbers that would rise from there over time.
Those barrels are hitting a market awash in crude. Total Western Canadian crude held in storage rose 900,000 barrels last week from a week earlier to about 32 million barrels, according to data firm Genscape Inc. A year ago, inventories were about 28 million barrels.
“People are just scrambling right now to try and find rail to put it on, but there isn’t enough rail currently to absorb the impact of how much supply is coming through,” analyst Mike Walls said.
The Globe and Mail. REUTERS. 14 Dec 2017. Keystone foes question approval process. Landowners along revised route through Nebraska were not properly consulted, activist group argues
KEVIN O’HANLON, SEWARD, NEBRASKA, USA
Nebraska’s main anti-pipeline group is trying to rally opposition to the TransCanada Keystone XL project’s recently approved route through the state, tracking down landowners it says were not given a voice in the regulatory process.
If it succeeds, Bold Nebraska could create new roadblocks to the controversial project to move Canadian oil to U.S. refineries, backed by U.S. President Donald Trump, by pressing regulators to revisit TransCanada Corp.’s application, or by suing if they refuse.
The Nebraska Public Service Commission issued an approval for Keystone XL to pass through the state in late November, removing the last big regulatory obstacle for the long-delayed project. But the commission’s approval was not for the route TransCanada had singled out in its application, but for an alternative that shifts it closer to an existing pipeline right-of-way that affects scores of different landowners.
Jane Kleeb, the head of Bold Nebraska, which has been fighting the pipeline plan for years, said the group was beginning meetings with these new landowners to rally opposition to the line, starting Wednesday and continuing into next week.
“We hope to begin the education process with landowners so they understand this is a lifetime easement for a one-time payment,” she told Reuters. “We aim to engage at least 20 per cent of the new landowners in the legal landowner group.”
The project has spurred controversy since it was proposed a decade ago, with environmentalists making it a symbol of their broader fight against fossil fuels.
TransCanada says the pipeline would be good for the economy and could be run safely. The company said it had about 90per-cent support among landowners for the proposed route, but had not yet negotiated support along the approved route.
Lawyers for foes of the line argued at a hearing on Tuesday that regulators had no authority to approve the “alternative” path, and were only allowed to rule on the proposed route. One lawyer, added that residents along the approved path had not been included in the regulatory process, and that social and environmental impacts had not been properly studied.
TransCanada, meanwhile, requested that the public service commission allow it to amend its application retroactively to head off legal challenges. The commission is considering TransCanada’s request.
HOUSING
StatCan. 2017-12-14. New Housing Price Index, October 2017
- New Housing Price Index — Canada, October 2017, 0.1% increase (monthly change)
- Source(s): CANSIM table 327-0056: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=3270056&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
Ottawa was the only market with notable growth in new house prices in October. The national figure was moderated by unchanged prices in more than half of the surveyed cities.
Chart 1: New Housing Price Index
New Housing Price Index, monthly change
Prices for new homes in Ottawa rose 1.0% in October compared with a national average of 0.1%. Builders in Ottawa linked the monthly gain to improved market conditions and new phases of development. For row, single and semi-detached houses, the Canada Mortgage and Housing Corporation reported that year-to-date housing starts were 7.6% higher for Ottawa in October compared with the same period in 2016.
In Vancouver, new home buyers paid 0.3% more in October. Prices for new homes in Toronto edged up 0.1% after four consecutive months of no change.
New house prices were unchanged in 15 of 27 census metropolitan areas (CMAs) surveyed. Kitchener–Cambridge–Waterloo (-0.1%) recorded the lone decrease in October—its first since July 2015.
Chart 2: Growth in new homes prices in Ottawa outpace the national average
New Housing Price Index, 12-month change
In October, new house prices in Canada rose 3.5% year over year, down from this year's largest increase of 3.9%.
Vancouver (+8.4%) and London (+8.1%) had the largest 12-month increases among the surveyed CMAs.
New home prices in Ottawa rose 4.6% in October—the largest year-over-year increase for this city since November 2010.
Among the four CMAs reporting price declines, St. John's (-1.1%) recorded the largest year-over-year decrease for the third consecutive month.
Chart 3: New house prices in Saskatchewan rose by more than 50% from February 2007 to May 2008
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171214/dq171214c-eng.pdf
REUTERS. DECEMBER 14, 2017. Canada new home prices edge up, Toronto shows signs of strength
OTTAWA (Reuters) - Canadian new home prices edged up by 0.1 percent in October on strength in the capital, Ottawa, while prices in Toronto rose for the first time in five months, Statistics Canada said on Thursday.
Analysts in a Reuters poll had forecast a 0.2 percent increase from September. Prices increased by 3.5 percent compared to October 2016.
Ottawa recorded a 1.0 percent gain on improved market conditions and new developments. Prices were unchanged in 15 of the country’s 27 metropolitan areas.
Toronto and Vancouver, Canada’s hottest markets for the past few years, posted modest increases of 0.1 percent and 0.3 percent respectively. Provincial governments in Ontario and British Columbia have both taken measures to clamp down on foreign buyers blamed for soaring prices.
The new housing price index excludes apartments and condominiums, which the government says are a particular cause for concern and which account for one-third of new housing.
Reporting by David Ljunggren; Editing by Bernadette Baum
The Globe and Mail. THE CANADIAN PRESS. 14 Dec 2017. Canadian home prices slide 0.5 per cent in November
OTTAWA - Canadian home prices fell again in November, the third-straight monthly decline and the largest November drop outside of a recession, as Toronto prices fell for the fourth month and Vancouver prices were flat, data showed on Wednesday.
The Teranet-National Bank Composite House Price Index, which measures changes for repeat sales of single-family homes, showed national prices declined 0.5 per cent in November from the month before as four of the 11 cities surpurchases veyed weakened.
The index was up 9.2 per cent from a year earlier, a fourth-straight deceleration from record gains seen earlier in the year, as government measures to rein in the housing market continued to dampen demand.
In Toronto, prices fell 1.4 per cent on the month. Prices have retreated since the Ontario government levied a foreignbuyers tax in April in a bid to cool the market and douse speculation in Toronto and the surrounding area.
Teranet said there were some signs buyers may have increased activity in November in an attempt to complete before new mortgage stress tests are required in January. It also said Toronto’s condo market appears to have regained some strength even as the more expensive detached market remains weak.
In Vancouver, where the B.C. government implemented its own tax on foreign buyers more than a year ago, prices were flat after six consecutive months of record highs, Teranet said. Vancouver’s condo subindex has shown the most strength, notching 10 consecutive monthly gains for a total rise of 19 per cent.
THE GLOBE AND MAIL. DECEMBER 14, 2017. HOUSEHOLD DEBT. Canadians’ debt burden keeps climbing, hits record in third quarter
DAVID PARKINSON, ECONOMICS REPORTER
Canadian households' debt loads rose to another record high in the third quarter, as mortgage debt continued to climb despite rising interest rates.
Statistics Canada reported that the ratio of household credit-market debt to disposable income – the key gauge for measuring Canadians' debt loads – rose to 171.1 per cent in the three months ended Sept. 30, up from a revised 170.1 per cent in the second quarter (originally reported as 167.8 per cent).
Total household credit-market debt increased 1.4 per cent in the quarter, to $2.11-trillion, also a record. Credit-market debt is made up of mortgages, consumer credit (such as credit cards and lines of credit), and non-mortgage loans.
The report will be a source of concern for the Bank of Canada, which considers the country's high household debt levels to be the biggest source of vulnerability for country's economic outlook and financial-system stability. After an encouraging flattening of the debt-to-income ratio a couple of years ago, the ratio surged again last year and has hit record highs the past two quarters.
"Today's household debt numbers told a familiar story as borrowing once again outpaced disposable in-come growth," said Royal Bank of Canada economist Josh Nye in a research report.
Statscan said the main contributor to the increase was mortgage debt, which grew by 1.5 per cent in the quarter, to $1.38-trillion. Borrowing continued to climb despite rising interest rates on mortgages, as the Bank of Canada raised its key rate twice during the quarter, by a total of half a percentage point.
The rise in mortgage borrowing also came despite evidence on a cooling of some of Canada's key housing markets, particularly the Toronto market. The Canadian Real Estate Association's home price index declined nearly 2.5 per cent in the quarter.
But economists believe some home buyers may have rushed into the market to take advantage of pre-approved mortgages on which the interest rates were set before the rate increases, and to lock in before regulatory changes take effect that will toughen mortgage borrowing requirements.
"With home buyers rushing to get into the market ahead of the new [Office of the Superintendent of Financial Institutions] rule change that takes effect on Jan. 1, 2018, we could see a further increase in the fourth quarter," said Bank of Montreal economist Benjamin Reitzes in a research note.
While borrowing continues to climb, Canadians' household net worth dipped 0.1 per cent in the quarter, a function of the pullback in housing prices. Statscan said residential real estate values suffered their first quarter-to-quarter decline since 2009.
"We are concerned that a growing number of Canadians will put themselves at risk and be unable to maintain their household expenses and reduce debt levels in the future," said Scott Hannah, president of the Credit Counselling Society, in a statement released in response to the Statscan report.
But with the new mortgage rules coming in next year, interest rates rising and key housing markets already cooling, economists are optimistic that the household debt trend will start improving in 2018.
"The rising cost of borrowing, and more reasonable trends in home prices, should slow credit growth in the years ahead. And with incomes expected to continue increasing, the trend in debt-to-income should flatten out – a development policymakers are keen to see," Mr. Nye said. "But even if that dynamic plays out, households will remain stuck with high debt loads – keeping financial system vulnerabilities elevated in the years to come."
REUTERS. DECEMBER 14, 2017. Canada home sales rise; household debt hits record
Andrea Hopkins, David Ljunggren
OTTAWA (Reuters) - Resales of Canadian homes rose in November for the fourth straight month, the Canadian Real Estate Association said on Thursday, but it lowered its forecast for 2018 sales and prices because it expects stricter mortgage rules to dampen demand.
Separate data showed new home prices edged up by 0.1 percent in October, while Canadian household debt as a share of income hit a record high in the third quarter. This reinforced concerns that Canadians have taken on too much debt to get into the booming housing market.
Taken together, the three reports paint a picture of highly indebted households and a still-robust housing market that is expected to cool in 2018 as more tightening of mortgage rules takes effect.
Household debt rose to a record 171.1 percent in the third quarter and is expected to increase further this quarter as homebuyers try to complete deals before January, when a new banking stress test will make it harder to take on big mortgages.
But the ratio could flatten out in 2018 if the rule changes restrain homebuying and the debt that comes with it, Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets, said in a research note.
Sales of existing homes rose 3.9 percent in November from October nationwide and jumped 16 percent in the Toronto area, Canada’s largest market, the real estate association said. But it cautioned that the looming stress tests might have pulled activity forward.
Sales were up 2.6 percent from a year earlier, while home prices gained 9.3 percent on the year, continuing a steady deceleration as the cumulative effect of tighter mortgage rules and a foreign buyers tax in Toronto and Vancouver reduced demand.
The association forecast a 5.3 percent drop in sales activity in 2018. Three months ago, it had expected a 2.3 percent decline.
The national average price is expected to fall 1.4 percent to C$503,100 ($391,865) in 2018 after a 4.2 percent rise in 2017. In October, the group had forecast a milder 0.6 percent decline.
The separate Statistics Canada report on new home prices, which make up a far smaller segment of the housing market, showed modest increases of 0.1 percent for Toronto and 0.3 percent for Vancouver. They had been the nation’s hottest markets.
Additional reporting by Fergal Smith in Toronto; Editing by Lisa Von Ahn; Editing by Lisa Von Ahn
FINANCE
StatCan. 2017-12-14. National balance sheet and financial flow accounts, third quarter 2017
- National wealth: $10.6 trillion, Third quarter 2017, 0.3% increase (quarterly change)
- National net worth: $10.9 trillion, Third quarter 2017, 0.1% increase (quarterly change)
- Source(s): CANSIM table 378-0121: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=3780121&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
National wealth, the value of non-financial assets in the Canadian economy, rose 0.3% to $10,557.9 billion at the end of the third quarter, the second consecutive quarter of slow growth.
Canada's net foreign asset position fell by $27.9 billion to $298.3 billion in the third quarter, following four consecutive quarterly increases. The reduction mainly reflected the effect of an appreciating Canadian dollar, which lowered the value of foreign currency-denominated assets and liabilities by $79.8 billion when converted to Canadian dollars. In the third quarter, 96% of Canada's international assets were denominated in foreign currencies, compared with 37% for international liabilities.
National net worth, the sum of national wealth and Canada's net foreign asset position, increased by $6.9 billion to $10,856.2 billion, the smallest gain since the second quarter of 2016. On a per capita basis, national net worth was $294,500 at the end of the third quarter.
Chart 1: Change in national net worth
Household sector net worth is stable as credit market debt rises at a slower pace
Overall, net worth of the household sector was flat at $10,614.7 billion in the third quarter, edging down 0.1% from the previous quarter. The value of household residential real estate declined by $3.0 billion in the third quarter due to weakening housing resale prices. This was the first quarterly decline since the first quarter of 2009. The value of financial assets of households edged up 0.1%.
Total household credit market debt (consumer credit, and mortgage and non-mortgage loans) reached $2,110.3 billion in the third quarter, up 1.4% from the previous quarter. Mortgage debt was the main contributor, increasing 1.5% to $1,384.2 billion. Consumer credit was also up, rising 1.2% to $620.7 billion. On a year-over-year basis, consumer credit has increased 4.8% since the same quarter last year. The share of mortgage liabilities to total credit market debt edged up to 65.6%.
Household credit market debt as a proportion of household disposable income (adjusted to exclude pension entitlements) increased to 171.1% in the quarter from 170.1% in the second quarter (revised from 167.8%; see note to readers). In other words, there was $1.71 in credit market debt for every dollar of household disposable income. Leverage, measured by the ratio of household total debt to total assets, edged up from 16.6% to 16.8% by the end of the third quarter, as debt grew at a faster pace (+1.4%) than the value of total assets (+0.1%).
Chart 2: Household sector leverage: Debt to assets
Households' debt service ratio declines
On a seasonally adjusted basis, households borrowed $23.4 billion of credit market debt in the third quarter, down from $28.7 billion in the second quarter. Mortgage borrowing decreased $0.8 billion to $16.2 billion. Similarly, borrowing in the form of consumer credit and non-mortgage loans decreased $4.6 billion to $7.1 billion.
The household debt service ratio, measured as total obligated payments of principal and interest as a proportion of household disposable income, was relatively flat at 13.9% in the third quarter. Similarly, the interest-only debt service ratio, defined as household mortgage and non-mortgage interest as a proportion of adjusted household disposable income, stood at 6.3%, down slightly from the previous quarter (6.4%).
Federal government net debt position improves
The federal government demand for funds slowed in the third quarter as they recorded a net issuance of $11.4 billion of Canadian bonds, largely sold to non-residents, which was more than offset by $16.6 billion in net retirements of short-term paper. Conversely, the demand for funds by all other levels of governments was $12.5 billion. The bulk of this borrowing was $9.1 billion in net issuances of bonds and debentures.
The ratio of federal government net debt (book value) to gross domestic product (GDP) edged down from 29.3% at the end of the second quarter to 29.2%. Similarly, the ratio of other government net debt (book value) to GDP edged down to 27.4% over that same period, as GDP grew at a faster pace than government net debt (book value).
Demand for funds by non-financial private corporations slows
Non-financial private corporations' demand for funds fell sharply, from $45.4 billion in the second quarter to $28.0 billion in the third quarter, the second consecutive quarterly decline. This was primarily due to non-mortgage loans, which decreased by $32.2 billion.
Non-financial private corporations' total financial assets increased by $48.2 billion in the third quarter to $3,420.9 billion, primarily as a result of upward revaluations of equity as asset prices rose. Meanwhile, financial liabilities of this sector increased by $86.6 billion, resulting in a $23.9 billion decrease in net worth.
Chart 3: Borrowing by private non-financial corporations
Financial corporations' financial assets decline
The financial sector provided $11.2 billion of funds to the economy through financial market instruments, down from the previous quarter's elevated value of $67.8 billion. This reduction in lending was the result of declines in most instruments, including non-mortgage loans (-$41.4 billion), short-term paper (-$18.8 billion), consumer credit (-$6.3 billion), mortgages (-$2.3 billion) and bonds (-$11.1 billion), which together more than offset increases in listed shares (+$23.4 billion).
The decrease in the supply of funds was accompanied by downward revaluations, as the value of total financial assets of this sector was down by $36.8 billion at the end of the third quarter to $13,473.7 billion. This was the largest decrease since the second quarter of 2012. The other changes in assets account, which tracks changes in the value of assets and liabilities not caused by transactions, recorded a decline in value of $116.6 billion for financial assets held by the sector at the end of the third quarter. The main contributors to the downward revaluation were Canadian bonds and debentures (-$61.3 billion) and unlisted shares (-$62.3 billion), as a result of changes in asset prices.
Chart 4: Economic transactions and other changes in value of financial corporations' assets
Chart 5: Canada Savings Bonds as a proportion of total bonds held by households
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/171214/dq171214a-eng.pdf
TRANSPARENCY
Global Affairs Canada. December 14, 2017. Minister of Foreign Affairs on bringing openness, transparency, and clarity to new Ministerial Direction
Ottawa, Ontario - The Honourable Chrystia Freeland, Minister of Foreign Affairs, today issued the following statement:
“The Government of Canada has a clear responsibility to keep Canadians safe and protect their individual rights and freedoms. This means that Government departments and agencies must always ensure that they comply with the Canadian Charter of Rights and Freedoms.
“In response to the concerns Canadians expressed over the course of the National Security Consultation, I am issuing the Ministerial Direction to Global Affairs Canada on Avoiding Complicity in Mistreatment of Individuals by Foreign Entities.
“Today’s announcement reflects our unequivocal condemnation of the mistreatment, including torture, of individuals at the hands of their Government.
“This directive provides clear and transparent guidelines by which Global Affairs Canada must abide in all cases to avoid becoming complicit in mistreatment, and it will ensure that our obligations towards human rights and the rule of law are never compromised."
Backgrounder. New ministerial direction for Global Affairs Canada
The National Security public consultation, conducted from spring to December, 2016, lead to a commitment to ensuring that the national security practices of departments and agencies fully respect Canadians’ rights and freedoms.
On December 14, 2017, the Honourable Chrystia Freeland, Minister of Foreign Affairs, issued the Ministerial Direction to Global Affairs Canada on Avoiding Complicity in Mistreatment of Individuals by Foreign Entities. This ministerial direction (MD)—the first ever issued to Global Affairs Canada on this subject—is equivalent to ones recently issued by the Minister of Public Safety and Emergency Preparedness and the Minister of National Defence, and carries the same obligations.
In line with the government’s commitment to transparency in the matter of national security, Global Affairs Canada has published online the full content of the ministerial direction.
The new ministerial direction on information-sharing with foreign entities strengthens Canada’s commitment to human rights, promotes respect for the Canadian Charter of Rights and Freedoms and fulfills Canada’s obligations under international law.
With these new directions, we are seeking to more clearly state the Government of Canada’s condemnation of torture and other mistreatment. In addition, language has been clarified with regard to how departments and agencies must respect the law, including especially the Canadian Charter of Rights and Freedoms. Additionally, specific prohibitions on the disclosure, requesting and use of information are set out; including a clear prohibition on the disclosure or requesting of information where doing so would result in an individual being at substantial risk of mistreatment.
Furthermore, these new directions will prohibit certain uses of information likely obtained through mistreatment. This information may never be used where doing so would create a substantial risk of further mistreatment, and may never be used as evidence.
Transparency and accountability are the guiding principles of these directions, which include reporting requirements to the National Security and Intelligence Committee of Parliamentarians, to the department’s minister and to Canadians.
STATISTICS
Innovation, Science and Economic Development Canada. StatCan. December 13, 2017. Government of Canada fulfills commitment to give Statistics Canada greater independence. Greater independence ensures high-quality data and better decisions for Canadians
Ottawa - Canadians rely on the integrity and accuracy of the data produced by Statistics Canada to properly manage their affairs and facilitate business and economic growth. Impartial information is valued and is essential for making informed decisions.
Today, the Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development, welcomed Royal Assent of a bill that reinforces Statistics Canada’s independence through legislative amendments to the Statistics Act.
The amended Act formalizes Statistics Canada’s independence by entrenching this independence into law. It helps ensure that decisions on statistical matters are transparent and are based on professional considerations.
The amended Statistics Act sets out the responsibilities of the Minister and those of the Chief Statistician. The changes will increase transparency around decisions and directives made by the government as they relate to Statistics Canada. This reinforces Statistics Canada’s credibility and will increase Canadians’ trust in their national statistical agency.
The targeted amendments:
- enable the appointment of the Chief Statistician by the Governor in Council to a renewable term of not more than five years—the Chief Statistician may only be removed for cause;
- create the Canadian Statistics Advisory Council to advise the Minister and Chief Statistician on the overall quality of the national statistics system and publish an annual report;
- remove from the Act the threat of imprisonment for those who refuse to respond to mandatory surveys; and
- allow the transfer of records for all censuses from 2021 onwards to Library and Archives Canada after 92 years and the transfer of records where consent was given for the censuses of population taken in 2006, 2011 and 2016 as well as for the 2011 National Household Survey.
These amendments reflect the Government of Canada’s commitment to increasing transparency and supporting evidence-based decision making. By strengthening Statistics Canada’s independence, the Government ensures that Canadians can continue to rely on the integrity and accuracy of the data produced by their national statistical agency.
Quotes
“One important criterion for high-quality data is impartiality. The quality of statistical information is maximized when decisions on statistical matters and operations are not subject to control by the Government.”
– The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development
“Statistics Canada is a world-class agency that carries out its mandate to provide Canadians with unbiased, high-quality information that responds to the information needs of the country.”
– Anil Arora, Chief Statistician of Canada
Quick Facts- Previously, the Statistics Act had no specific provision establishing the independence of Statistics Canada.
- Canada endorses the United Nations Fundamental Principles of Official Statistics and the Organisation for Economic Co-operation and Development Recommendation on Good Statistical Practice. The amendments better align Canada with these international standards.
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