CANADA ECONOMICS
NAFTA
Innovation, Science and Economic Development Canada. Minister. January 12, 2018. Bains promotes strong and unified North American automotive sector to benefit both Canada and the U.S. Minister Bains attends 2018 North American International Auto Show to promote NAFTA and trade
Ottawa – Canada’s automotive sector is uniquely positioned to design, develop and produce the cars of the future. A skilled workforce combined with deep expertise in both advanced manufacturing and emerging technologies position Canada to play a leadership role as the industry evolves. Leveraging these advantages as part of a deeply integrated North American auto sector serves to create and maintain highly skilled jobs on both sides of the border. This is the message that the Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development, will underscore in his meetings with key automotive sector executives at the 2018 North American International Auto Show in Detroit, Michigan.
As a part of this trip, Minister Bains will announce significant Strategic Innovation Fund investments in the Canadian automotive sector that will help to create and maintain thousands of highly skilled jobs across the country.
The Minister will also participate in an announcement with BlackBerry highlighting Canadian innovation in the auto sector. The announcement will take place at AutoMobili-D, an exposition at the auto show dedicated to the rapidly evolving merger between mobile technology and cars.
Minister Bains will also attend the 17th Annual General Meeting of the Canadian Automotive Partnership Council, an industry-led group that addresses competitiveness issues facing the sector.
Throughout the trip, Minister Bains will promote Canada as a world-leading destination for automotive investment and a strategic player in global supply chains. He will also underscore the importance of Canadians and Americans working together in the auto sector, which benefits both countries. Cooperation on both sides of the border encourages the creation of new jobs and business opportunities, which leads to new, emerging technologies.
Quotes
“Canada’s strengths in automotive innovation—our ideas and talented workforce—are playing a key role in shaping the future of the auto industry in North America. These advantages further strengthen an integrated American and Canadian automotive supply chain.”
– The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development
Quick Facts
- The automotive manufacturing sector contributes $19 billion to Canada’s gross domestic product.
- The Canadian automotive sector is one of Canada’s largest manufacturing sectors. It employs over 500,000 people directly and indirectly, and for every job created on an assembly line, six additional jobs are created in other sectors of the economy.
- Canada’s automotive industry produces more than 2.4 million vehicles every year. This translates into one car being manufactured every 13 seconds.
- Canada is home to around 700 suppliers of traditional automotive components and hundreds more suppliers from other industries, such as information and communications technologies.
- The Strategic Innovation Fund is a flexible program that reflects the diversity of innovation in all sectors of the economy.
Innovation, Science and Economic Development Canada. January 15, 2018. Federal government investment to create 1,500 new jobs and secure more than 8,000 others in Guelph. $49 million will help Linamar Corporation’s advancements in AI and advanced manufacturing
Guelph, Ontario - The Government of Canada is maintaining and creating well-paying middle-class jobs, economic growth and long-term prosperity by investing in Canada’s automotive manufacturing sector, and this support is also ensuring that the sector remains globally competitive and innovative.
Today, the Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development, announced an investment of $49 million in automotive parts manufacturer Linamar Corporation. Minister Bains was joined by the Honorable Brad Duguid, Ontario’s Minister of Economic Development and Growth, and Lloyd Longfield, Member of Parliament for Guelph.
Minister Bains made the announcement before heading to the North American International Auto Show in Detroit, Michigan, where he will meet with global and Canadian executives to discuss Canada’s important role in North America’s auto industry.
The funding will help create 1,500 new Canadian jobs and maintain more than 8,000 by supporting advanced manufacturing processes—including artificial intelligence and 3D printing—and cleaner automotive technologies. Canadians will directly benefit from these advancements through more efficient, environmentally friendly vehicles. Linamar will also open a new innovation centre in Guelph, Ontario, dedicated entirely to research and development.
The federal government is supporting innovation in the auto industry and is committed to attracting investment in this important sector of the economy. Canada is uniquely positioned to be the home for the design, development and manufacturing of the car of the future. To secure this place, the government is investing in the technology, talent and infrastructure needed to shape the future of mobility.
This is the first project announced under the Strategic Innovation Fund, a new program to attract and support high-quality business investments across all sectors of the economy.
Quotes
“Our government is investing in automotive innovation, one of Canada’s leading sectors. This investment will create and maintain middle-class jobs in southern Ontario and drive economic growth in the area. Investing in these projects also means that Canadian manufacturers can remain globally competitive and leaders in technological advancements.”
– The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development
“Ontario’s auto industry continues to attract investment, which proves our foundational strength when it comes to building and developing new vehicles. Partnerships like this one support our long-term competiveness and help Ontario continue to lead the way in transformative vehicle technologies.”
– The Honourable Brad Duguid, Ontario’s Minister of Economic Development and Growth
“Guelph and Linamar together play a key role in Canada’s auto industry. With continued innovation, Linamar will continue to support thousands of well-paying middle-class jobs in our community.”
– Lloyd Longfield, Member of Parliament for Guelph
“We are thrilled by the support shown today by both our federal and provincial governments for our significant investment in innovation. Innovation is the single most important thing we can do in terms of product design, process design and material development to solve global problems and create opportunities for us all to succeed. To have our government support us in that endeavour is fantastic, further cementing the fact that Canada is a great place for advanced manufacturing to thrive.”
– Linda Hasenfratz, CEO, Linamar Corporation
Quick Facts
- Linamar Corporation employs more than 25,700 people worldwide, with more than 9,300 in Canada.
- Linamar has 59 manufacturing locations, 6 R&D centres and 21 sales offices in 17 countries in North and South America, Europe and Asia. Linamar generated sales of $6.0 billion in 2016.
- Canada’s auto sector employs over half a million Canadians, and for every assembly job, six spinoff jobs are created. There are close to 700 automotive parts suppliers operating in Canada.
- The Strategic Innovation Fund is a flexible program that reflects the diversity of innovation in all sectors of the economy.
Strategic Innovation Fund: https://www.canada.ca/en/innovation-science-economic-development/programs/strategic-innovation-fund.html
FULL DOCUMENT: https://www.canada.ca/en/innovation-science-economic-development/news/2018/01/federal_governmentinvestmenttocreate1500newjobsandsecuremorethan.html
The Globe and Mail. 15 Jan 2018. Auto parts maker Linamar plans to create 1,500 jobs and open an innovation and research centre in Ontario. Backed by $100-million from federal, Ontario governments, plan by auto parts maker helps dispel NAFTA concerns
GREG KEENAN, AUTO INDUSTRY REPORTER
This is a huge vote of confidence in Ontario and Canada’s auto sector given the uncertainties of NAFTA.
BRAD DUGUID, ONTARIO’S ECONOMIC DEVELOPMENT MINISTER
Linamar Corp., Canada’s secondlargest auto-parts maker, will create 1,500 jobs and open a new innovation and research centre in an investment backed by about $100-million in funding from the federal and Ontario governments.
The creation by Linamar of 1,500 jobs over the next 10 years will be announced Monday in Guelph, Ont., where Linamar is based. The company already operates a research and development centre and factories throughout the city, which manufacture engine and transmission parts, as well as industrial equipment, and employ several thousand people.
The Linamar plans dispel some of the uncertainty about whether Canadian companies in the auto sector will continue to make investments in Canada amid doubts about the future of the North American free-trade agreement. U.S. President Donald Trump has threatened several times that the United States will pull out of NAFTA while U.S. negotiators have put automotive proposals on the table that Canada and Mexico have rejected outright.
In addition to its large manufacturing footprint in Canada, Linamar has operations in Kentucky, North Carolina and Mexico, so it could be affected by major changes to the automotive provisions of NAFTA.
The federal government will provide a $49-million grant from its Strategic Innovation Fund, while about $50-million will come from the Ontario government’s Jobs and Prosperity Fund. Ottawa’s Strategic Innovation Fund was created in the federal budget last year and takes the place of several funds, including the Automotive Innovation Fund.
In these kinds of projects, the two governments typically contribute a combined 20 per cent of what companies are putting up, so the Linamar investment in the project is expected to be about $500-million. “Innovation is the single most important thing we can do in terms of product design, process design and material development to solve global problems,” Linamar chief executive officer Linda Hasenfratz said in a statement. “To have our government support us in that endeavour is fantastic, further cementing the fact that Canada is a great place for advanced manufacturing to thrive.”
The government financing will support such advanced manufacturing initiatives as 3-D printing and artificial intelligence as well as the development of cleaner auto technologies.
“This investment will create and maintain middle-class jobs in Southern Ontario and drive economic growth in the area,” said Navdeep Bains, federal Minister of Innovation, Science and Economic Development. “Investing in these projects also means that Canadian manufacturers can remain globally competitive and leaders in technological advancements.”
Ontario Minister of Economic Development and Growth Brad Duguid said: “This is a huge vote of confidence in Ontario and Canada’s auto sector given the uncertainties of NAFTA.”
The Linamar investment takes the total invested in the auto sector by car companies and major parts makers to more than $3-billion since the fall of 2016, Mr. Duguid said.
Ms. Hasenfratz is positioning Linamar to benefit from the growth of new engine technologies such as hybrids and batteryelectric vehicles.
“What excites me about this is that a lot of this is next-generation transmission, drive train and engine components and looking ahead to electric and connected vehicles,” Mr. Duguid said.
Artificial intelligence, vehicle light-weighting and robotics are where Ontario’s strengths need to be in the new economy, he said in an interview.
Linamar is targeting sales of $9.5-billion by 2021, compared with $6.0-billion in 2016. Financial results for 2017 have not been released. Ms. Hasenfratz is also diversifying the company founded by her father, Frank Hasenfratz, in Guelph in 1966.
Linamar announced in December that it will purchase the MacDon group of companies, a Winnipeg-based manufacturer of agricultural equipment. The company employs about 26,000 people and is the second-largest auto maker in Canada measured by revenue.
REUTERS. JANUARY 15, 2018. Canadian government to invest C$49 million in auto parts maker Linamar
(Reuters) - The Government of Canada said on Monday that it plans to invest C$49 million ($39.41 million) to support an expansion by auto parts maker Linamar Corp LNR.TO.
Navdeep Bains, the Minister of Innovation, Science and Economic Development, made the announcement before heading to the North American International Auto Show in Detroit to meet with global and Canadian executives to discuss Canada’s role in North America’s auto industry.
The investment into Linamar will help create 1,500 new Canadian jobs and maintain more than 8,000 aiding manufacturing processes - including artificial intelligence and 3D printing - and cleaner automotive technologies, according to a federal government statement. The purpose of the investment is to benefit the Canadian population through more efficient, environmentally-friendly vehicles.
The Canadian government has been facilitating innovation in the auto industry and is encouraging expenditure in the technology, talent and infrastructure needed to shape the future of mobility.
Reporting by Shalini Nagarajan in Bengaluru; Editing by Nick Zieminski
BLOOMBERG. 15 January 2018. Linamar Plans C$750 Million Expansion With Government Support
By Josh Wingrove
The Canadian and Ontario governments are pledging money to support an expansion by auto parts maker Linamar Corp., one of a raft of firms whose future partly depends on the outcome of Nafta talks.
Linamar will announce the C$750 million ($600 million) project on Monday, supported by C$49 million from the federal government and up to C$50 million from Ontario, Canada’s most populous province, according to a federal government statement. The expansion will create 1,500 jobs and “maintain” another 8,000, the statement said.
The fate of Nafta is murky -- U.S. President Donald Trump has repeatedly threatened to quit and Canadian officials last week said they thought the odds he’d give notice of doing so are rising. Nonetheless, Trump and U.S. House Speaker Paul Ryan each said last week they’d rather renegotiate the North American Free Trade Agreement than kill it.
The manufacturer’s expansion will support artificial intelligence, three-dimensional printing and clean technology, the statement from the office of Canadian Innovation Minister Navdeep Bains said.
“Innovation is the single most important thing we can do in terms of product design, process design and material development to solve global problems and create opportunities for us all to succeed," Linamar Chief Executive Officer Linda Hasenfratz said in a written statement. "To have our government support us in that endeavor is fantastic, further cementing the fact that Canada is a great place for advanced manufacturing to thrive.”
Hasenfratz also sits on the Canadian government’s Nafta advisory panel. The sixth round of Nafta talks is set to kick off in Montreal later this month, with autos one of the key sticking points. Bains is also due to attend the North American International Auto Show in Detroit on Monday afternoon.
REUTERS. JANUARY 15, 2018. BMW optimistic on favorable outcome to NAFTA talks
FRANKFURT (Reuters) - BMW BMWG.DE is optimistic Washington’s drive to renegotiate the North American Free Trade Agreement (NAFTA) will result in a deal that benefits the German carmaker, it said on Monday.
“BMW is supporting free trade on a global basis. The U.S. are our second home. We will continue to invest significant amounts of money in this market and we are optimistic that the NAFTA agreement will be adapted in a very positive way,” finance chief Nicolas Peter said at a round table at the Detroit auto show.
Canada last week welcomed U.S. President Donald Trump’s suggestion that talks to modernize NAFTA could be extended beyond the end-March deadline, a move which might help break a deadlock at the negotiations.
Peter also said BMW group’s unit sales would likely grow between 0 and 5 percent worldwide this year and 5-10 percent in China, thanks to a raft of new models, especially SUVS.
Reporting by Andreas Cremer; Writing by Ludwig Burger; Editing by Mark Potter
Canadian Heritage. January 14, 2018. Minister Joly to Promote Canada-U.S. Ties, Trade in Boston and Manchester
Ottawa - No two countries in the world share a stronger or more integrated economic relationship than the United States and Canada. The Government of Canada is working closely with the United States to strengthen our trade relationship and create new opportunities for workers, businesses and middle-class families on both sides of the border.
As part of these efforts, the Honourable Mélanie Joly, Minister of Canadian Heritage, will visit Boston, Massachusetts, and Manchester, New Hampshire, for a two-day visit. During this visit she will help establish and reinforce relationships with State and Congressional leadership, business stakeholders and other influencers.
These long-term goals include the importance of the North American Free Trade Agreement (NAFTA) as an engine of growth and prosperity; the reaffirmation of collaboration and shared values between the two countries; the importance of clean energy development and its impact on the environment; and the challenges and opportunities brought on by the explosion of technology for creative industries.
Minister Joly will also be the keynote speaker at the 16th edition of the Martin Luther King, Jr. Dinner Celebration, an event organized by the National Cultural Diversity Awareness Council (NCDAC). Minister Joly will address this year's theme "Like a good neighbor, Canada has always been there" by showcasing the unique relationship between Canada and the United States.
In addition, Minister Joly will touch upon Canada's linguistic duality, the valued diversity in its political and social landscape and Creative Canada, the first-ever federal strategy developed to help Canadian creative industries thrive and succeed in the digital age.
Quotes
"Canada and the United States not only share a border, but also the goal of enhancing shared prosperity, job creation, sustainable economic development and vibrant cultural exchanges. The long-standing friendship between our two countries is a strong foundation to make progress in all of these areas, and I look forward to furthering the conversation toward positive change."
—The Honourable Mélanie Joly, Minister of Canadian Heritage
"Canada and the United States enjoy one of the closest relationships of any two countries in the world. We are friends, we are allies and we are partners. For 24 years, NAFTA has created opportunities, jobs and a better life for our people. This is why from day one of the negotiations, Canada has brought concrete proposals on how we can modernize NAFTA to the benefit of Canadian, American and Mexican citizens. We are focused on achieving real progress, including in Montréal this month."
—The Honourable Chrystia Freeland, Minister of Foreign Affairs
Quick Facts
- Canada and the United States share the longest secure border in the world. Nearly 400,000 people and $2.4 billion in goods and services cross the border daily.
- Since the inauguration of President Donald Trump on January 20, 2017, the Prime Minister, Cabinet members, parliamentary secretaries, premiers and provincial/territorial ministers, parliamentary committees and other parliamentarians have cumulatively undertaken more than 245 visits to the United States and engagements in Canada and abroad with senior U.S. officials.
- The North American economy has grown significantly thanks to NAFTA. Since 1994, our combined trading relationship has increased three-fold to almost US$1 trillion in value.
North American Free Trade Agreement (NAFTA): http://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/fta-ale/background-contexte.aspx?lang=eng
National Cultural Diversity Awareness Council: https://www.ncdac.org/
Speech – Launch of Creative Canada: https://www.canada.ca/en/canadian-heritage/news/2017/09/creative_canada_-avisionforcanadascreativeindustries.html
The Globe and Mail. 15 Jan 2018. Liberals, Conservatives put their rivalry aside, with an eye on saving NAFTA
JOHN IBBITSON
It’s hard to be sure what Donald Trump was trying to get across in his interview with The Wall Street Journal last week. But he seemed to suggest that, contrary to recent reports out of both Ottawa and Washington, he is in no rush to scuttle the North American free-trade agreement.
“I’m leaving it a little flexible because they have an election coming up,” the President told interviewers when asked if he had established a timetable for concluding the negotiations. Presumably by “they” he meant Mexico, which holds presidential elections on July 1.
“So I understand a lot of things are hard to negotiate prior to an election. … I understand that that makes it a little bit difficult for them,” he said.
“… There’s no rush, but I will say that if we don’t make a fair deal for this country, a Trump deal, then … I will terminate.” (His actual words have been transformed here into something approaching coherence through the generous application of ellipses.)
“With that being said, I would rather be able to negotiate,” he went on. “We’ve made a lot of headway. We’re moving along nicely. [U.S. Trade Representative] Bob Lighthizer and others are working very hard, and we’ll see what happens.”
Well that changes everything – if in fact the President can be believed. Reports from the bargaining table indicate little progress in the talks, the deadline to conclude a new agreement is currently the end of March, and both Canadian and U.S. officials have been signalling that the President was ready to pull the plug on the negotiations, which resume later this month in Montreal.
But if Mr. Trump actually wants to wait until after the July Mexican elections before making a decision on NAFTA, then nothing is likely to get decided at all this year. Thanks to the interminable U.S. election cycle, by July, campaigning for the midterm congressional elections will be well under way.
“He could forget what he said, or change his mind,” observes John Duffy, a principal at the consulting firm Strategy-Corp, who has lent his expertise to numerous Liberal campaigns. But the thought of Mr. Trump pulling the plug on NAFTA “in the full heat of the midterms – you gotta wonder about that one.”
Conservative Leader Andrew Scheer may get a better sense of what’s what when he visits Washington this week, part of his effort to offer a “united Canadian front,” as his staff put it, in the trade talks. Which, by the way, is the actual point of this column: to remark on the remarkable degree of solidarity between Liberals and Conservatives on the NAFTA negotiations.
Things could have been very different. The Conservatives could have urged the government to cut ties with the Mexicans and negotiate a deal, any deal, with the Trump team. They could have accused the Liberals of failing to protect Canadian jobs and Canadian interests and labelled them as incompetent. But they haven’t.
There are things they criticize. The Tories believe the government should have pushed harder, earlier for a deal on auto parts, which is at the core of the NAFTA relationship, and think loading up the negotiations with demands for improved labour and environmental standards only bogged things down.
But, said Conservative foreign affairs critic Erin O’Toole, “We want the government to succeed. NAFTA is a legacy Conservative achievement. We’re free traders. This is beyond partisanship.”
Thirty years ago, in the epic federal election of 1988, the Conservatives and Liberals fought over the original Canada-U.S. free-trade agreement, signed by Conservative Prime Minister Brian Mulroney and bitterly opposed by Liberal Leader John Turner.
Irony of ironies, Mr. Turner is now witnessing a Liberal Prime Minister go all out to preserve the successor to that agreement from an American presidential wrecking ball, with the Conservatives offering their full support.
This writer has long suspected that the Liberals and Conservatives would, eventually, fall out over the NAFTA talks, that the falling-out could become a key election issue, might even prompt an election on that issue. But so far, the very opposite is happening.
Which, considering what’s at stake, is a good thing.
The Globe and Mail. 15 Jan 2018. Then, as now, preserving NAFTA is all about playing defence
GORDON RITCHIE, former Canadian ambassador for trade negotiations and deputy chief negotiator of the Canada-U.S. free-trade agreement
The situation remains high-risk, particularly given the President’s regular unpredictability. This risk, in and of itself, significantly raises the cost of doing business for Canada’s exporters. As an open economy, we (and the Mexicans and the Americans themselves) will pay a penalty for this disruption.
The Canadian media universe is aflutter over the possible collapse of the renegotiation of the North American free-trade agreement. After all, NAFTA and its precursor, the original Canada-U.S. free-trade agreement (FTA), have been the underpinning of Canadian prosperity and economic growth for the past 30 years.
U.S. President Donald Trump has often threatened to tear up the arrangement, and reports this week suggested he was on the verge of announcing the required six-month notice of withdrawal, triggering general alarm and a sharp, if brief, drop in both the Canadian dollar and the Mexican peso.
When I was negotiating the original FTA, I was struck by the high drama in the Canadian media, who covered every twist and turn in detail, with a large contingent of reporters waiting outside every negotiating session to question the principals. Meanwhile, in the meeting room, the atmosphere was largely one of boredom as the busy work of negotiations proceeded without any engagement on the real issues.
It took a breakdown of those talks before the real talks could begin.
Without any inside information, I believe the current talks are facing the same situation.
The current negotiations were triggered by the Trump administration’s bizarre claim that NAFTA was a one-sided deal that produced huge trade deficits with Mexico (true) and Canada (demonstrably false). The United States tabled outrageous opening positions (five-year sunset clause, eliminating dispute settlement, tilting rules of origin, dismantling supply management and curtailing access to government procurement) and then proclaimed its indignation that Canada (and Mexico) has not been accommodating. Meanwhile, the Canadians and Mexicans have reportedly not offered serious counterproposals of their own, rejecting the American demands out of hand as “poison pills.” Under the circumstances, I accept that it is highly likely that Mr. Trump will take the next step and invoke Article 2205 of NAFTA to allow the United States to withdraw at the end of six months.
Prudently, the Canadian government has taken steps to soften the blow. It has reached out to stakeholders directly and through the media to warn that we should expect the trigger to be pulled. It has tried to formulate proposals that, without completely caving in, would go some distance to meet U.S. demands and provide a basis for the President to declare victory. It has also reminded people and markets that the withdrawal notice would not mean the immediate demise of NAFTA – the President would not be bound actually to withdraw at the end of six months, and Congress and the courts would have their say – and that even if the deal were terminated, the impact, while significant, would not be devastating. These are all necessary and sensible steps.
However, these steps may not be sufficient. The situation remains high-risk, particularly given the President’s regular unpredictability. This risk, in and of itself, significantly raises the cost of doing business for Canada’s exporters. As an open economy, we (and the Mexicans and the Americans themselves) will pay a penalty for this disruption. It only remains to be seen how long the uncertainty will last and how high the penalty to be paid.
It is perhaps worth recalling that the original FTA, on which NAFTA was later built, was also negotiated under difficult circumstances. While U.S. tariffs were much higher than they are today, they were never the real issue, and both sides quickly agreed generally to eliminate them within the decade. The real issue then, as now, was unilateral American “unfair trade” actions applied aggressively and unreasonably against successful imports from Canada, most notably on softwood lumber. Our embassy also reported that about 200 protectionist bills were being considered by the U.S. Congress.
The remedies offered by the GATT (General Agreement on Tariffs and Trade, precursor to the World Trade Organization) were too little and too late to prevent serious damage.
In this climate, prime minister Brian Mulroney seized on the goodwill of president Ronald Reagan to launch the arduous negotiations that resulted more than two years later in the original free-trade agreement. The result did not guarantee fair play by the Americans (as demonstrated in the succession of softwood lumber cases) but it did give Canadian exporters a fighting chance. That is all we can hope from the present negotiations.
Given the U.S. President’s take-no-prisoners rhetoric, the challenge will be great, but perhaps not impossible.
REUTERS. JANUARY 15, 2018. Bank of Canada to start 2018 with a hike, despite NAFTA risks
Leah Schnurr, Anu Bararia
OTTAWA/BENGALURU (Reuters) - The Bank of Canada will kick off 2018 by hiking interest rates, buoyed by robust job growth, even as uncertainty around the fate of the North American Free Trade Agreement lingers, a Reuters poll found.
Analysts expect the BoC to raise rates three times this year, starting on Wednesday with a 25 basis point increase that will take the benchmark borrowing cost to 1.25 percent.
The central bank raised rates twice back-to-back last year as it removed monetary stimulus it put in place in 2015 amid a collapse in the price of oil, a major export for Canada.
Bank of Canada Governor Stephen Poloz said last month he is increasingly confident the economy will need less stimulus over time, even as he reiterated labor market slack poses a downside risk.
December’s unexpectedly large increase in jobs, as well as a survey showing Canadian companies remain optimistic about future sales are both likely to be factors in the central bank’s decision to hike this week, said Brian DePratto, senior economist at TD.
“The ongoing strength in the Canadian economy no longer justifies emergency level interest rates.”
Expectations of a January rate hike were initially dampened by a Reuters report last week that Canada is increasingly convinced President Donald Trump will soon announce the United States intends to pull out of NAFTA.
Given Canada sends over three quarters of exports south of the border, its economy could be hit if Washington scraps the trade agreement which Trump has repeatedly blamed for American job losses and big trade deficits for his country.
But market odds of a hike have bounced back up to 77 percent while the poll gave a median 70 percent chance of an increase. BOCWATCH
Analysts expect the strong economic growth Canada saw in 2017 will outweigh the ongoing trade uncertainty in the near-term. The country likely posted average annual growth of 3 percent last year, outperforming even the most optimistic forecasts at the start of 2017.
Still, eight of 31 analysts polled said they expect the Bank to hold rates steady on Wednesday as it waits for inflation to pick up and to see how the next round of NAFTA negotiations later this month proceed.
“Although the data recently has pointed to a stronger labor market... there are no indications that inflation is about to take off. More importantly, the downside risks to the economy have amplified,” said Jean-Paul Lam, professor of economics at University of Waterloo.
But waiting too long to raise rates could also stoke imbalances in Canada’s economy fueled in large part by a hot housing market and the growing indebtedness of Canadians.
The household debt-to-income ratio stood at 171.1 percent in the third quarter last year.
The median forecast in the Reuters poll is for one rate increase apiece in the third and fourth quarters, bringing the benchmark to 1.75 percent by the end of 2018. Analysts predict another hike in the first quarter of 2019.
Economic growth is expected to average 2.2 percent this year, slightly higher than the 2.1 percent forecast in the previous poll in October. Expectations for 2019 were unchanged at 1.8 percent.
Meanwhile, the unemployment rate is expected to remain below 6 percent following blockbuster gains the labor market made last year.
Although domestic inflation is expected to average 1.9 percent this year, slightly below the Bank of Canada’s 2 percent target, some analysts said it was more likely the global economy would gather momentum this year and push world-wide inflation higher than currently anticipated.
Polling and analysis by Anu Bararia
BLOOMBERG. 15 January 2018. Nafta Trio to Gather in Davos as Negotiations Resume in Canada
By Josh Wingrove
- Lighthizer, Freeland, Guajardo head to Davos before Nafta meet
- Sixth round of trade talks set to resume in Montreal Jan. 23
The three ministers leading negotiations to revamp Nafta will get two chances for face-to-face talks this month, including one near the slopes of Davos.
U.S. Trade Representative Robert Lighthizer, Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Minister Chrystia Freeland are due to attend the World Economic Forum in Switzerland, which begins on Jan. 23, the same day the sixth round of North American Free Trade Agreement talks get underway across the Atlantic in Montreal.
Freeland expects to raise the subject of Nafta informally on the sidelines of Davos, spokesman Alex Lawrence said in a statement. The three ministers are also tentatively scheduled to hold a trilateral meeting in Montreal on Jan. 28, he said. The ministers didn’t attend the last two negotiating sessions in Mexico and Washington, after attending previous rounds.
The fate of Nafta remains unclear -- U.S. President Donald Trump and House Speaker Paul Ryan each said last week they’d rather renegotiate than walk away from the pact altogether, though Trump reiterated his threat to pull out. Canadian officials said they believe the odds are rising that Trump will give notice of a Nafta withdrawal. Treasury Secretary Steven Mnuchin said last week the U.S. delegation will discuss its “America First” agenda at Davos.
The Nafta talks are due to run until January 28, two days longer than the Davos summit. Only two Nafta chapters are completed out of a new deal that’s expected to include almost 30; Freeland has said several others are close to completion.
There’s no rush to reach a deal, Trump said last week in an interview with the Wall Street Journal, adding it might be difficult for Mexico to agree terms before its July 1 election. Canada, in turn, called that a “constructive position.”
“Provided there is goodwill from all parties, we could make some real meaningful progress in Montreal, and that is what I’m working towards and hoping for,” Freeland said in a television interview aired Sunday on Global News. Freeland said a withdrawal notice by Trump would only be “a step before withdrawal,” and there is uncertainty about what would shake out if the U.S. does give notice.
“This would be the first time the U.S. has actually withdrawn from a free trade agreement, so there is a lot of uncertainty about what would actually happen,” Freeland said.
Nafta talks began in August 2017 and have been scheduled through March, with the seventh round expected in late February in Mexico City. Trump had initially wanted a deal by December, though trade negotiations of this scale typically take years.
ENERGY
StatCan. 2018-01-15. Supply and disposition of refined petroleum products, October 2017
- Refinery receipts of crude oil: 8.2 million cubic metres, October 2017, 14.4% increase (12-month change)
- Refinery production: 9.6 million cubic metres, October 2017, 20.7% increase (12-month change)
- Refinery domestic sales: 9.6 million cubic metres, October 2017, 8.9% increase (12-month change)
- Source(s): CANSIM table 134-0004: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=1340004&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=
Refinery receipts up
Canadian refineries received 8.2 million cubic metres of crude oil in October, up 14.4% from the same month a year earlier. Regular maintenance work, which affected refinery output in the fall of 2016, was a contributing factor to the sizable increase in receipts in October 2017.
Chart 1: Refinery receipts of crude oil and equivalent products
Imports to Canadian refineries, which tend to be volatile, were up 24.9% from October 2016 to 2.7 million cubic metres. Domestic receipts were up 10.0% to 5.5 million cubic metres over the same period.
Crude oil inventories held at refineries totalled 3.6 million cubic metres in October, down 10.5% from the same month in 2016.
Refinery production and sales rise
Refinery production increased 20.7% from October 2016 to 9.6 million cubic metres.
Domestic sales of refined petroleum products rose 8.9% to 9.6 million cubic metres. The main contributors to the increase in domestic sales were diesel fuel oil (+21.7%) and motor gasoline (+2.5%).
Chart 2: Domestic sales of refined petroleum products, by product
Imports down while exports up
Canadian imports of refined petroleum products totalled 1.8 million cubic metres in October, down 4.8%.
Meanwhile, Canadian exports increased significantly in October, offsetting a consistent drop due to pre-planned refinery maintenance over the last three years for the same reference month. In October 2017, exports were up 78.8% to 2.4 million cubic metres compared to the same month last year.
Chart 3: Exports of refined petroleum products
Inventories up
Closing inventories of refined petroleum products held by refineries increased 4.0% year over year, to 7.9 million cubic metres in October.
FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/180115/dq180115c-eng.pdf
The Globe and Mail. 15 Jan 2018. Natural gas producers cut costs as price outlook deteriorates. Natural gas: Across much of North America, supply still ample.
JEFF LEWIS, CALGARY
Canada’s moribund natural gas industry is retrenching with cuts to capital spending and dividends as a sharp plunge in wholesale prices shows no signs of letting up.
Companies had already curtailed production through the fall to cope with a darkening outlook for the commodity following pipeline outages on TransCanada Corp.’s Alberta system that led to a buildup of fastgrowing supplies.
Now, even the most efficient producers are recalibrating, a sign of deepening malaise in a corner of the energy industry that has historically accounted for big employment gains and drove hefty budget surpluses for the Alberta government.
Last week, Peyto Exploration & Development Corp. chopped its monthly dividend by 45 per cent, to six cents a share, and slashed its 2018 budget to about $225-million, from a midpoint of $375-million that was set last November.
It said production in 2018 would be 2 per cent lower against last year’s total.
The company attributed the tough medicine to a 40-per-cent drop in near-term Alberta wholesale prices from the time it began mapping out its 2018 budget last fall. On Friday, gas for spot delivery in the province sold for $1.80 per 1,000 cubic feet, according to the NGX Electronic Exchange.
A deteriorating outlook for longer-term prices, known as the forward curve, has also made it harder for companies to use financial contracts to lock in future sales at higher levels, removing a major safeguard for cash flows in a falling market.
“We’re an industry leader in costs, and we’re saying we need to defer capital investment today because the returns are better tomorrow,” Darren Gee, Peyto’s president and chief executive officer, said in an interview.
“It’s defensive, but at the same time it’s the only thing we control,” he added. “You can’t sit back and say we’re going to hope that the gas price is going to get better. That’s not a strategy.”
Calgary-based Peyto joins Tourmaline Oil Corp., Advantage Oil and Gas Ltd. and Painted Pony Energy Ltd. in tapping the brakes on spending this year while shifting focus away from gas deposits to drilling prospects with more valuable petroleum liquids.
Advantage’s 2018 budget of $175-million this year is down from about $205-million set in 2017. Painted Pony expects to spend $185-million, versus more than $300-million in 2017. And Tourmaline, led by chief executive officer Mike Rose, cut spending this year to $1.08-billion from $1.52-billion previously.
Such caution contrasts with spending increases planned by companies whose production is skewed more toward crude oil. U.S. and global crude prices have surged as rising demand and production cuts help erode a worldwide glut.
Across much of North America, however, natural-gas supplies remain ample. That’s true even with the record drawdowns from storage in the United States to cope with frigid winter weather that blanketed much of the eastern part of that country last week.
The Energy Information Administration said net withdrawals from natural gas storage totalled 359 billion cubic feet for the week ended Jan. 5, surpassing the previous record of 288 bcf set four years ago. Prices for gas traded in New York barely moved.
“I’ve never seen anything close to that, and gas was up only 4 or 5 per cent. Even when you have a cold winter, the market is still saying we’ve just got too much gas coming on here,” Raymond James Ltd. analyst Jeremy McCrea said.
“Ultimately, what’s going to need to happen to fix this is just more prudent investment decisions by gas operators, and some guys who aren’t making money [will have to] start shutting in some of this gas volume here.”
To cope, producers are spending more to coax higher-priced liquids out of the ground, while also diversifying markets in a bid to reduce exposure to weak Alberta prices.
Peyto said it plans to prioritize spending in Alberta’s Deep Basin exploration region. The company also implemented a new marketing strategy, aiming to cut exposure to Alberta-based pricing to 40 per cent of volumes over time, from 100 per cent currently.
RS Energy Group analyst Samir Kayande said the move underlines the growing importance of marketing arrangements as Canadian gas struggles to compete with low-cost U.S. shale production.
“We’ve believed for quite some time that finding markets for gas is actually more important than resource development,” he said. “Low cost isn’t everything. It’s having low costs, and having a market.”
FOREIGN POLICY
The Globe and Mail. 15 Jan 2018. Canada able to assist with blocking ships to N. Korea
ROBERT FIFE; VANCOUVER, OTTAWA, BUREAU CHIEF
South Korea is particularly alarmed about the heated rhetoric between U.S. President Donald Trump and Mr. Kim.
General says navy has capability, but Canada’s help hasn’t been requested Canada’s top general says the Royal Canadian Navy has the “capability” to help enforce United Nations sanctions against North Korea if asked to do so at Tuesday’s foreign ministers summit in Vancouver.
U.S. Secretary of State Rex Tillerson, who is co-hosting the summit with Foreign Affairs Minister Chrystia Freeland, intends to use the one-day meeting to examine measures to stop the regime of Kim Jong-un from skirting sanctions, including an increased focus on blocking ships from supplying North Korea with embargoed goods. But nobody has asked for Canada’s military assistance – yet.
General Jonathan Vance, Chief of the Defence Staff, said he has “the military capability inside the Armed Forces” to participate in any effort to ensure compliance with UN sanctions.
“But willingness, intent to do so – those are entirely political decisions and [we] have not even entered into conversations about that at all,” Gen. Vance told The Globe and Mail on Friday. “And in fact, at this juncture, nobody is asking us to.”
Ms. Freeland and Mr. Tillerson are playing host in Vancouver to 11 foreign ministers as well as diplomats from a total of 20 countries that had an involvement in the 1950-53 Korean War to discuss how to exert maximum pressure on North Korea to end its nuclear and ballistic missile programs.
U.S. Defence Secretary James Mattis and Canadian Defence Minister Harjit Sajjan will attend a ministerial dinner Monday evening – a sign that the military option remains open to the United States.
But the goal of the foreign ministers meeting is to avoid a military showdown with North Korea by taking steps to persuade Mr. Kim to the negotiating table for meaningful talks.
“North Korea’s illegal nuclear weapons program is a threat to regional and global stability,” British Foreign Secretary Boris Johnson said in a statement Sunday. “Sanctions are biting but we need to maintain diplomatic pressure on Kim Jong-un’s regime.”
New UN sanctions adopted last month authorize member states to inspect, seize and impound any vessels in their territorial waters found to be transporting embargoed goods to North Korea. In December, South Korea seized two ships carrying oil to the North.
The new sanctions – which also require countries hosting North Korean migrant workers to repatriate them – were imposed against Pyongyang after its November intercontinental ballistic missile test that was capable of hitting North America.
China – which declined an invitation to Vancouver – and Russia have criticized Tuesday’s summit for being too narrowly focused on sanctions and isolation of North Korea and less on the need for dialogue with Mr. Kim, the 34-year-old dictator.
But South Korea’s Ambassador to Canada Shin Maeng-ho told The Globe that sanctions are the only way to bring pressure on Mr. Kim. Since the sanctions were enacted, he noted the Kim regime has recently opened a hotline with Seoul and agreed to send athletes to the Olympic Games in South Korea next month.
“We have no illusion about North Korea,” Mr. Shin said. “We should not drink Champagne because it is too early, but this a chance to lead North Korea to denuclearization.”
South Korea is particularly alarmed about the heated rhetoric between U.S. President Donald Trump and Mr. Kim that has seen both men hurl insults and brag about which leader has the bigger nuclear button. Talk of a
U.S. pre-emptive military strike has been raised in the Trump White House after
North Korea boasted it is on the verge of developing a nuclear-tipped, long-range Hwasong-15 missile.
“Dialogue is more important than ever. Previously, we thought we had time for negotiations to persuade North Korea to give up its nuclear weapons, but this time we have no time any more because North Korea is at the final point of developing nuclear missile technology,” Mr. Shin said. “If we fail at this dialogue then the remaining option may be military strikes, so I think this dialogue is really important to evolve into higher level of talks for the denuclearization of North Korea.”
Although the Vancouver talks are designed to send a unified message that sanctions should be enforced as a means of bringing about denuclearization talks, experts say the Vancouver summit is also aimed at shoring up Mr. Tillerson and Mr. Mattis in their battle with White House hawks, who prefer a military solution over diplomacy.
“It reinforces those within the administration and those beyond the administration like the South Koreans who are in favour of diplomacy over military measures,” said retired Canadian diplomat James Trottier, who led diplomatic delegations to North Korea in 2015 and 2016.
But Mr. Trottier said the summit won’t succeed unless foreign ministers discuss new approaches to dealing with North Korea and that means ending the U.S. insistence that Mr. Kim pledge to end his nuclear program before serious talks can begin.
“Post-Vancouver, at some point the international community needs to face the fact that North Korea is a de facto nuclear state and look at issues of deescalation and containment,” he said. “This will involve discussions with North Korea without pre-conditions.”
Simon Palamar of the Centre for International Governance Innovation said no country that has ever developed nuclear weapons has then negotiated them away. He said Washington – working with China, Russia, South Korea and Japan – needs to push North Korea for a freeze on ballistic missile tests and a cap on nuclear weapons.
With a report from Gloria Galloway.
OPEC. JANUARY 14, 2018. Oil hovers below $70 highs, clouded by rise in U.S. output
Ron Bousso
LONDON (Reuters) - Oil hovered near a three-year high of $70 a barrel on Monday on signs that production cuts by OPEC and Russia are tightening supplies, but analysts warned of “red flags” due to surging U.S. production.
International benchmark Brent crude futures LCOc1 were trading 3 cents lower at $69.84 by 1522 GMT, having risen above $70 earlier in the session.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were up 22 cents at $64.52 a barrel. Trading was relatively slow due to a national holiday in the United States.
A production-cutting pact between the Organization of the Petroleum Exporting Countries, Russia and other producers has given a strong tailwind to oil prices, with both benchmarks last week hitting levels not seen since December 2014.
Growing signs of a tightening market after a three-year rout have bolstered confidence among traders and analysts that prices can be sustained near current levels.
Bank of America Merrill Lynch on Monday raised its 2018 Brent price forecast to $64 a barrel from $56, forecasting a deficit of 430,000 barrels per day (bpd) in oil production compared to demand this year.
Other factors, including political risk, have also supported crude.
“Tighter fundamentals are (the) main driver to the rally in prices, but geopolitical risk and currency moves along with speculative money in tandem have exacerbated the move,” U.S. bank JPMorgan said in a note.
RED FLAGS
Still, a number of analysts have warned that the 13 percent rally since the start of the year could peter out in the short term due to global refinery maintenance and rising North American production.
U.S. energy companies added 10 oil rigs in the week to Jan. 12, taking the number to 752, energy service firm Baker Hughes GE.N said on Friday.
That was the biggest increase since June 2017.
In Canada, energy firms almost doubled the number of rigs drilling for oil last week to 185, the highest level in 10 months.
Vienna-based consultancy JBC Energy expects U.S. production to grow by 600,000 bpd in the first quarter of 2018 compared to a year earlier.
“From a fundamental perspective, the surge in U.S. managed money raises a clear red flag for us. We see the U.S. complex as decidedly bearish over the next two months.”
The surplus in crude is expected “to widen to levels that will overwhelm the market”, JBC said in a note. Seasonal refinery maintenance will further limit demand for crude, it added.
Additional reporting by Henning Gloystein in Singapore; Editing by Dale Hudson and Louise Heavens
AVIATION
REUTERS. JANUARY 15, 2018. Airbus aims to seize jet production crown from Boeing in 2020
PARIS (Reuters) - Airbus AIR.PA is three years away from recovering leadership of the commercial aircraft market by outproducing U.S. rival Boeing BA.N, its top planemaker predicted on Monday.
Speaking to journalists after posting higher orders and deliveries in 2017, Chief Operating Officer and planemaking president Fabrice Bregier said he was prepared to bet that Airbus would deliver more airplanes than Boeing in 2020 - a feat it last achieved in 2011 - because of a record order backlog.
For 2018, he predicted deliveries would accelerate to reach close to 800 aircraft, up around 11 percent compared with annual gains of 8 percent and 4 percent in 2017 and 2016 respectively.
Airbus delivered 718 jets in 2017, compared with 763 delivered by Boeing.
Bregier also expressed confidence in the ability of engine maker Pratt & Whitney UTX.N to keep up with aircraft production plans after overcoming a series of delays.
Reporting by Tim Hepher, Cyril Altmeyer; Editing by Sudip Kar-Gupta
________________
LGCJ.:
