CANADA ECONOMICS

NAFTA

The Globe and Mail. 2 May 2018. U.S. sets May NAFTA deadline. NAFTA: Talks have accelerated recently, with more negotiations scheduled next week. Trade Representative says steel tariff exclusions can be negotiated as part of trade deal, which if not completed in two weeks could be put over until November
ADRIAN MORROW, WASHINGTON
GREG KEENAN, TORONTO
STEVEN CHASE, OTTAWA

U.S. Trade Representative Robert Lighthizer is warning that a new NAFTA deal must be completed in the next two weeks – even as an American demand that Canada and Mexico agree to quotas on the amount of steel and aluminum they can export to the United States throws another stumbling block in the way of the negotiations.

Mr. Lighthizer told a U.S. Chamber of Commerce luncheon in Washington Tuesday that if talks to overhaul the North American free-trade agreement aren’t finalized soon, the deal might have to be punted until after congressional elections in November.

“I have no idea,” the Trump administration’s trade chief said when asked when NAFTA talks would conclude. “If we don’t get it done in the next week or two, then we’re on thin ice.” The White House must get its congressional authorization to negotiate trade deals renewed this summer. And under American trade law, any agreement must clear several procedural hurdles before Congress votes on it. This means negotiators are running out of time to reach a deal that can be submitted to the current Congress.

His comments came a day after the White House gave Canada and Mexico a “final” temporary exemption from its steel and aluminum tariffs. The exemption expires on June 1.

Mr. Lighthizer said Canada and Mexico can negotiate a permanent exclusion from the tariffs “hand in hand” with a NAFTA agreement.

If they cannot resolve NAFTA this month, Canada and Mexico face tariffs of 25 per cent on steel and 10 per cent on all aluminum exported to the United States.

The White House is demanding any other country that wants an exclusion from the tariffs accept quotas on the metals.

One source briefed on the confidential NAFTA negotiations said it is possible the Trump administration will accept Canadian and Mexican agreement to tough new rules for the auto industry – including a requirement that 70 per cent of all steel, aluminum and glass in North American-made cars comes from within the NAFTA zone – in lieu of quotas.

NAFTA talks, in progress since August, have accelerated in recent weeks, with top officials scheduled to reconvene for further negotiations in Washington next week. But they are at loggerheads over auto-content requirements, procurement, dairy and dispute resolution, among other matters.

Mr. Trump first announced the tariffs in March, arguing they are necessary for “national security,” to ensure the United States’ ability to build tanks, fighter jets and naval ships is not dependent on foreign countries. The levies are primarily aimed at keeping Chinese metal out of the United States, but the administration has argued it is necessary to impose them on all countries in order to prevent Chinese companies from “transhipping” their goods through other countries to get around the duties.

Foreign Minister Chrystia Freeland insisted that, despite Mr. Lighthizer’s comments, steel and aluminum discussions would be separate from NAFTA. She said Ottawa would instead persuade the United States not to impose tariffs by convincing it that its current trade policies are economically inefficient.

“We remain confident that the U.S. administration understands that tariffs or quotas would hurt American jobs,” she told reporters on Parliament Hill Tuesday. “The notion that Canada, in any way, could pose a security threat to the United States is absurd.”

The prospect of a steel quota also brought strong words from Joseph Galimberti, president of the Canadian Steel Producers Association.

“Canada is not a part of the problem, but rather an ally which has long been part of the solution and we should be treated as such,” Mr. Galimberti said in an e-mail.

A quota would undermine fair trade, disrupt supply chains, chill investment and employment in Canada “and would accomplish nothing to either address the root causes of global overcapacity in steel or discourage unfair trade in steel globally,” he said.

But Canada’s view won little support among U.S. steel-industry executives who gathered in Washington Tuesday for the annual meeting of the American Iron and Steel Institute (AISI).

Canada and Mexico are not security threats to the United States, acknowledged John Ferriola, chief executive of steel producer Nucor Corp. But “it’s more than just a military alliance,” he said. “To have a true partnership between America and any country it has to be a military partnership and it has to be an economic partnership.”

When The Globe and Mail asked how much cheap steel from offshore countries is being diverted to the U.S. market through Canada and Mexico, the AISI officials provided no numbers.

Mr. Ferriola responded: “Too much,” which caused an eruption of laughter in the Senate Room in Washington’s Mayflower Hotel.

The U.S. executives maintained that quotas or tariffs are necessary against all countries so steel mills can return to a capacity utilization rate of 80 per cent from 74 per cent last year and 76 per cent so far in 2018.

“The steel business in this country continues to get pummelled with imports that are unfairly dumped here,” Tracy Porter, executive vice-president of Commercial Metals Co., said in response to the question about Canadian and Mexican steel. “To continue to diminish the manufacturing base of this country is a travesty that can’t be ignored.”

Mr. Porter added: “At the pace we’re going, we’re going to be relegated to some Third World country – probably in my children’s lifetime if we do not stop it now.”

REUTERS. MAY 1, 2018. U.S. mulls quotas on steel, aluminum after extending deadline
Jason Lange, Lisa Lambert

WASHINGTON (Reuters) - U.S. officials are pushing for quotas and “other restrictions” on steel and aluminum imports, a top trade official said on Tuesday after the White House announced a month-long extension of tariff exemptions for Canada, Mexico and the European Union.

The decision to extend that deadline was welcomed by many of America’s trading partners, but they continued to push for permanent exemptions.

“We will have quotas and other restrictions to make sure that we defend our industries in the interest of national security,” White House trade adviser Peter Navarro told steel industry executives.

President Donald Trump’s administration said in March it would impose tariffs of 25 percent on steel imports and 10 percent on aluminum in a bid to stanch imports from China, which it says had driven down prices and put U.S. companies out of business.

But it granted temporary exemptions to allies such as Canada, Mexico and the EU, which had been due to expire on Tuesday morning. The administration said on Monday night those exemptions would continue for a month, but added a full imposition of tariffs remained an option.

“Last night’s decision is certainly a step forward,” Canadian Foreign Minister Chrystia Freeland told reporters on Tuesday, adding: “Canada will continue to work for a full and permanent exemption.”

Before Tuesday, South Korea was the only country with a full exemption after it agreed to quotas. The White House said on Monday it had reached agreements for permanent exemptions for Argentina, Australia and Brazil.

The White House has attempted to link exemptions for steel and aluminum imports from the EU to a reduction of tariffs on car imports by the bloc.

That move has been rejected by the EU, which says it must receive a permanent exemption on the steel and aluminum tariffs before holding a wider discussion on trade. It has rejected a discussion of auto trade.

‘PROTRACTED EXTENSIONS’ UNLIKELY

“We’re having some potentially fruitful discussions about an overall reduction in trade tensions,” U.S. Commerce Secretary Wilbur Ross said of the discussions with the EU in a CNBC interview.

“I don’t think we have any intention to grant protracted extensions. That defeats the whole purpose.”

Trump has invoked a 1962 trade law to erect protections for U.S. steel and aluminum producers on national security grounds, amid a worldwide glut of both metals that is largely blamed on excess production in China.

The tariffs have increased friction with U.S. trading partners and prompted several challenges before the World Trade Organization.

At the same time as pursuing the metals tariffs, which have raised concern among U.S. consumers of steel and aluminum that rising costs will make them uncompetitive, the Trump administration has set out to tackle what it says is China’s theft of intellectual property from U.S. companies.

A U.S. delegation will travel to Beijing this week to discuss the issue. Trump has threatened to add $100 billion of imports from China to initial list of $50 billion if China retaliates against U.S. goods.

Reporting by Jason Lange and Lisa Lambert; Additional reporting by David Lawder in Washington, David Ljunggren in Ottawa and Philip Blenkinsop in Brussels; Editing by Paul Simao and Peter Cooney

Health Canada. May 2, 2018. Minister Petitpas Taylor to advocate Canada-United States trade in New Hampshire

Ottawa, Ontario, Canada - Canada and the United States share one of the most mutually beneficial economic relationships in the world. Canada is the number one market for most U.S. states and is among the top three customers for almost all states. The Government of Canada is committed to strengthening this important relationship and to creating new opportunities for workers and businesses on both sides of the border.

As part of these efforts, this week the Honourable Ginette Petitpas Taylor, Minister of Health, will visit Manchester and Concord, New Hampshire, where she will attend a State Trade Official Lunch Roundtable and deliver remarks at a reception with political and business leaders hosted by David Alward, Consul General of Canada in Boston. Minister Petitpas Taylor will also meet with Senator Jeanne Shaheen and the New Hampshire-Canada Trade Council. The Minister's remarks will stress the importance of NAFTA as an engine of growth and prosperity for New Hampshire.

While in New Hampshire, Minister Petitpas Taylor will visit the Advanced Regenerative Manufacturing Institute to learn about its work in engineered tissues and tissue-related technologies. She will also meet with Jeffrey Meyers, Commissioner of the New Hampshire Department of Health and Human Services to discuss the opioid crisis in North America. Before returning to Canada, the Minister will make a stop in Boston for a meeting with Marylou Sudders, Secretary of Health and Human Services in Massachusetts.

Quotes

"Canada and New Hampshire share a border and long history of friendship and family connections. I am pleased to be visiting the "Granite State" to promote trade and investment. Canadian and New Hampshire businesses already trade and invest across the border, supporting good middle class jobs in both countries. A modernized NAFTA will strengthen and increase this prosperity."

The Honourable Ginette Petitpas Taylor, P.C., M.P., Minister of Health

"Canada and the United States have the greatest economic partnership of any two countries in the world. We are energetically at work modernizing and updating NAFTA in a way that upholds and defends the best interests of Canadians. We know a fair deal, a win-win-win deal, is within reach. That is what we are working towards. Canada is absolutely committed to this outcome and we are working tirelessly to achieve it."

The Honourable Chrystia Freeland, P.C., M.P., Minister of Foreign Affairs

Quick facts

• Canada is New Hampshire's #1 trading partner and #1 export destination.
• In 2017, bilateral goods trade between Canada and New Hampshire reached just over US$6 billion.
• Trade and investment with Canada supports 39,000 jobs in New Hampshire.
• NAFTA is the biggest and most comprehensive economic region in the world with a regional market of 480 million consumers and a combined GDP of US$21 trillion.
• Canada and the United States share the world's longest secure border, over which approximately 400,000 people, and goods and services worth $1.7 billion USD, cross daily.
• Canada and the United States share one of the largest trading relationships in the world. Canada is the largest market for the United States, with US$283 billion worth of goods exported to Canada in 2017--more than China and Japan, and the UK combined.
• Millions of good, middle-class jobs on both sides of the border depend on our partnership. In the United States alone, nearly 9 million jobs are linked to Canadian trade and investment.
• Canada and the United States share values and interests on a range of international issues, including human rights, democracy, development, defence, nuclear non-proliferation and counterterrorism.

Canada and United States relations: http://www.international.gc.ca/world-monde/united_states-etats_unis/relations.aspx?lang=eng&_ga=2.152655801.1419764056.1525278641-1371245540.1491838080
North American Free Trade Agreement - Resources: http://www.international.gc.ca/trade-commerce/consultations/nafta-alena/toolkit-outils.aspx?lang=eng&_ga=2.152655801.1419764056.1525278641-1371245540.1491838080
North American Free Trade Agreement - Important News: http://www.international.gc.ca/trade-commerce/consultations/nafta-alena/important_news-nouvelles_importantes.aspx?lang=eng&_ga=2.152655801.1419764056.1525278641-1371245540.1491838080
State Trade Fact Sheet: http://www.international.gc.ca/world-monde/united_states-etats_unis/business_fact_sheets-fiches_documentaires_affaires.aspx?lang=eng&_ga=2.187963048.1419764056.1525278641-1371245540.1491838080

GDP

StatCan. 2018-05-02. Gross domestic product by industry: Provinces and territories, 2017

• Annual real gross domestic product by industry — Canada 2017: 3.3% increase (annual change)
• Source(s): CANSIM table 379-0031: http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=3790031&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=

Real gross domestic product (GDP) by industry increased in every province in 2017 for the first time since 2011. Goods-producing industries growth outpaced services-producing industries in every province except Nova Scotia and Ontario. Among the territories, GDP rose in Nunavut and Northwest Territories and declined in Yukon.

Nationally, real GDP by industry rose 3.3% in 2017, the strongest pace of growth since 2011. Following declines in 2015 and 2016, Alberta posted the highest growth rate among the provinces at 4.9%. Economic growth in British Columbia (+3.9%) outpaced the national average for a fourth consecutive year.

Chart 1: Real gross domestic product growth, Canada, provinces and territories, 2017

Chart 2: Real gross domestic product growth of the goods and services-producing industries, Canada, provinces and territories, 2017

Newfoundland and Labrador

In Newfoundland and Labrador, GDP rose 2.1% in 2017, following a 1.7% increase in 2016. Goods-producing industries increased 4.1% on the strength of contributions from mining, quarrying and oil and gas extraction, construction and manufacturing, while fishing and hunting declined for the fifth consecutive year.

Mining, quarrying and oil and gas extraction was up 4.9% from higher oil production at the Hibernia and the North Amethyst oilfields (see chart 3) and from a rise in iron ore mining that offset a decline in copper, nickel, lead and zinc ore mining. Support activities for the oil and gas extraction industry increased 15.7%.

Chart 3: Total crude production and real gross domestic product (GDP) growth, Newfoundland and Labrador, 2013 to 2017

Construction grew 5.0% led by engineering construction, as work continued on the Muskrat Falls electric power project and the development of a new open pit at an existing iron ore mine operation got underway. Residential construction declined for the fifth consecutive year and non-residential construction fell 14.3%.

Manufacturing was up 6.8% in 2017, its highest growth rate since 2012. Petroleum and coal product manufacturing increased 22.3%, the result of an expansion project at the refinery in Placentia Bay the previous year, and output of non-ferrous metal products rose as production at the Long Harbor nickel processing plant ramped up for a second year. Fabricated metal product manufacturing fell as work on projects related to the Hebron oilfield were completed.

Services-producing industries grew 0.7%. Transportation and warehousing rose 3.3% from increased activity in water and air transportation. After declines in 2015 and 2016, wholesale trade increased 3.0% with gains in seven of nine subsectors. Retail trade rose 1.0%.

Prince Edward Island

In Prince Edward Island, real GDP expanded 3.2% in 2017, the highest growth among the Atlantic provinces, after 2.2% growth in 2016. Goods-producing industries increased 6.1%, outpacing services-producing industries (+2.3%) for the first time in four years. Growth was broad-based with 18 of 20 industry groups recording higher output.

Construction rose 18.1% in 2017, largely due to a 32.7% increase in residential building construction, the result of a notable inflow of international immigrants over the last two years. Construction of non-residential buildings increased 11.9%, mainly due to commercial, institutional and government structures.

Manufacturing output rose 5.5%, largely driven by increases in food products, as well as increases in pharmaceuticals and medicines, industrial machinery, and aerospace products and parts. Crop production (except greenhouse, nursery and floriculture production) fell 6.4% as a dry growing season led to lower potato yields. Fishing, hunting and trapping was up as good weather contributed to a higher lobster catch.

Strong population growth and another good tourism season contributed to growth in services-producing industries. Retail trade increased 5.2% and accommodation and food services grew 4.2%, the highest growth rate among the provinces. Wholesale trade and truck transportation grew in tandem with goods production.

Nova Scotia

Nova Scotia's GDP rose 1.2% in 2017, the fourth consecutive year of growth. Services output advanced 1.5% and contributed more to growth than goods-producing industries, which was up 0.3%.

Real estate and rental and leasing services increased 2.4%, its highest growth rate since 2012. Wholesale trade grew 5.6% with widespread gains, particularly in machinery, equipment and supplies, which rebounded from three consecutive years of declines. Retail trade advanced 3.7% with gains in 10 of 12 subsectors. Transportation and warehousing grew, with notable contributions from truck, air and water transportation. Health care and social assistance, and professional, scientific and technical services contributed to the growth, while public administration declined 0.4% with decreases in both federal government and provincial government public administration.

Manufacturing grew 2.9%, a the third consecutive year of growth, as significant gains in plastics and rubber products, ship and boat building, and chemical products more than offset losses in machinery, food products, fabricated metal products and wood products.

Mining, quarrying, and oil and gas extraction declined 20.2%, largely due to a 51.0% decline in conventional oil and gas extraction that was attributable to lower production at offshore projects. Pipeline transportation of natural gas fell sharply in tandem. The new Touquoy gold mine began production late in 2017 and non-metallic mineral mining and quarrying increased significantly with the introduction of a new product line at the Cabot gypsum mine. Commercial coal mining resumed for the first time in 15 years.

Construction rose 2.3%. Engineering construction increased 4.1% as an increase in work on the Maritime Link project was partly offset by the completion of the Touquoy gold mine. Residential construction rose 4.9%, while non-residential building construction declined as work on the convention centre in Halifax was completed and finishing touches continued on a new hotel.

New Brunswick

In New Brunswick, GDP grew 1.9% in 2017, following a 1.2% increase in 2016. Goods-producing industries grew 3.3% on higher output from manufacturing and construction. Services-producing industries rose 1.5% with contributions from retail trade, transportation and warehousing, and finance and insurance.

Manufacturing industries grew 3.1%, led by an 8.8% rise at petroleum refineries following an increase in processing capacity in 2016. There were increases in the manufacturing of wood products, fabricated metal products and plastic products.

Construction rose 6.3%, largely the result of a 28.5% increase in non-residential building construction with significant gains in the building of both industrial and commercial structures. Residential construction increased 4.1% after declining for four consecutive years. Transportation engineering construction declined 14.2% following three years of increases.

Retail trade rose 4.9%, the largest gain since 2000, with notable increases in motor vehicle and parts dealers, health and personal care stores, and building materials and garden equipment and supplies stores. Wholesale grew 5.9%, with seven of nine subsectors showing higher output. Truck transportation rose 7.3% while pipeline transportation declined sharply as a result of significantly lower throughput of natural gas from Nova Scotia to the United States. In the public sector, higher output from federal government public administration was partly offset by a decline in provincial government public administration and lower output from hospital services.

Quebec

Quebec's GDP grew 3.1% in 2017, the strongest pace of growth since 2000 and more than twice the rate of growth in 2016 (+1.5%). Services output rose 2.9% and due to its larger weight in the economy, contributed more to growth than the 3.5% rise in goods-producing industries.

In the services-producing industries, wholesale trade grew 6.3% after declining in 2016 with notable contributions from wholesalers of machinery, equipment and supplies, food, beverage and tobacco products, and personal and household goods. Transportation and warehousing increased 5.8%, led by truck and air transportation and support activities for transportation. Professional, scientific and technical services was up 5.1% on the strength of an 8.9% gain in computer systems design and related services (which includes video game design and development). Retail trade rose 4.3% as 10 of 12 subsectors grew.

Manufacturing output rose 3.7% with growth in 15 of 19 subsectors. There were significant increases in food manufacturing, plastics and rubber products, fabricated metal products and machinery manufacturing. Aerospace products and parts manufacturing declined for the third consecutive year and alumina and aluminium production was down as in 2016.

Construction output grew 3.3% as all major components rose with the exception of a decline in engineering construction. Mining and quarrying increased 6.6% as higher output from gold and silver ore mines and the first full year of production from the Renard diamond mine more than compensated for a decrease in copper, nickel, lead and zinc and iron ore mining.

Ontario

Ontario's GDP rose 2.8% in 2017, following a 2.6% increase in 2016. Services-producing industries grew 3.0% and accounted for more than 80% of the province's growth, while goods-producing industries rose 2.1%.

Wholesale trade rose 7.1%, the highest growth rate since 2011, led by wholesalers of machinery, equipment and supplies, personal and household goods and miscellaneous wholesalers. Retail trade advanced 5.8% with all types of retailers recording higher activity. Professional, scientific and technical services were up 3.9%, largely from increased activity in computer systems design services and architectural and engineering services. Public administration was up 2.3%, mainly from an increase in local, municipal and regional public administration.

The introduction of provincial government regulations governing the housing market in the Greater Golden Horseshoe area around Toronto in April contributed to a 7.5% decline in offices of real estate agents and brokers and activities related to real estate. This industry had posted increases of 8.1% in 2015 and 9.7% in 2016.

Total construction increased 4.6%, with gains in all three major industry categories. Engineering construction increased 3.9% as work continued on major transportation engineering projects in Toronto and Ottawa.

Manufacturing rose 1.5% as 14 of 19 industry subsectors increased. The most significant gains in output were by manufacturers of machinery, food products, non-metallic mineral products and plastics and rubber products. Transportation equipment manufacturing fell 5.0% as motor vehicle and motor vehicle parts manufacturing declined in part as the result of a strike at an assembly plant and also due to changes to certain models being manufactured in Canada. Mining and quarrying (except oil and gas) was down for a second consecutive year.

Manitoba

Manitoba's GDP increased 2.9% in 2017, the highest growth rate since 2012, following growth of 2.1% in 2016. Growth was broad-based as 17 of 20 industrial sectors increased.

The output of goods-producing industries was up 4.0%. Construction rose 7.9% as all major categories contributed to growth. Engineering construction increased 7.8%, led by electric power engineering as work on the Keeyask dam and the Bipole III transmission line projects continued. Residential construction increased 10.9% and non-residential building activity rose 9.2%, following two years of declines.

Crop production (except greenhouse, nursery and floriculture production) grew 12.1%, benefiting from excellent growing conditions and good harvesting weather which resulted in record production for most types of crops. Manufacturing increased 1.8% with gains in 13 of 19 industry subsectors, led by machinery and chemical manufacturing.

Mining, quarrying and oil and gas extraction was down 2.2% as oil and gas extraction fell 6.1%, the fifth consecutive year of contraction. Higher oil prices contributed to a 39.9% increase in support activities for oil and gas extraction which remained below their 2014 level. Mining and quarrying was down 1.4%, as copper, nickel, lead and zinc ore mining declined 4.0% while gold and silver ore mining rose 41.3%.

Services-producing industries increased 2.5%. Higher crop production was also reflected in the 4.9% increase in transportation and warehousing. Despite a backlog in the movement of grains, rail and truck transportation increased. Wholesale trade grew 5.3% with higher activity reported by wholesalers of machinery, equipment and supplies, food and beverage products and miscellaneous products. Retail trade rose 4.2% with 9 of 12 subsectors increasing.

Saskatchewan

In Saskatchewan, GDP increased 2.9% in 2017, following declines of 1.2% in 2015 and 0.4% in 2016. Saskatchewan was one of three provinces where goods-producing industries (+3.7%) contributed more to total growth than services-producing industries (+2.3%).

Mining, quarrying and oil and gas extraction rose 7.8%, more than offsetting the declines of the previous two years. Higher oil prices contributed to a 5.6% increase in oil and gas production and a 35.6% rise in support activities for oil and gas extraction. Strong export demand largely from the United States contributed to a 13.1% increase in potash mining. Continuing weak market conditions for uranium resulted in a significant decline in other metal ore mining, causing the closure of the Rabbit Lake mine in 2016 and a temporary shutdown of the McArthur Lake and Key Lake mines in the summer of 2017.

Manufacturing output increased 7.8%, the highest growth rate in more than a decade, as there were significant increases in pesticide, fertilizer and other agricultural chemicals (+28.8%), grain and oilseed milling (+8.9%) and agricultural, construction and mining machinery (+19.6%). Crop production fell 3.0% as lower output from wheat and specialty crops such as lentils and mustard seed more than offset a record canola crop.

Construction activity decreased 3.2%, the third consecutive year of lower activity. Non-residential building construction fell 14.5% due to the completion of major projects such as new elementary schools and a new stadium in Regina. Engineering construction decreased 5.0%, largely the result of a decline in other engineering with the completion of a new potash mine.

The higher production of goods influenced the gains in wholesale trade (+6.2%) and transportation and warehousing (+4.9%). The increase in wholesale trade came mainly from wholesalers of machinery, equipment and supplies. In transportation and warehousing, the gains were mainly in pipeline, rail and truck transportation.

Public administration was up 2.1%, the highest growth rate since 2009. Retail trade was up 0.4% after edging up 0.1% in 2016.

Alberta

In Alberta, GDP increased by 4.9% in 2017, following declines of 3.9% in 2015 and 3.6% in 2016. Goods-producing industries rose 7.9% after decreasing 7.7% in 2015 and 7.8% in 2016. Employment rose by 23,100 (+1.0%) in 2017, but was still below the peak level of 2015. The 2.9% rise in services-producing industries more than offset the declines of the previous two years. A recovery in oil prices contributed to a 12.7% increase in output in the energy sector.

Chart 4: Recovery in Alberta energy sector, contribution to percent change in gross domestic product, 2013 to 2017

Mining, quarrying and oil and gas extraction was up 13.3%. Oil and gas extraction rose 7.8% and support activities for mining and oil and gas extraction rose 56.7% after declining by more than 60% over the two preceding years. Together, these two subsectors accounted for 50% of Alberta's growth in 2017.

The recovery of oil and gas extraction was a major factor in the manufacturing sector rebounding 8.1% as 17 of 19 subsectors reported higher output. The leading contributor to the sector's growth was machinery manufacturing (+45.8%), followed by petroleum and coal products manufacturing (+9.7%)

Construction activity was down 0.7%. Engineering construction declined 3.9% as a decrease in oil and gas projects more than offset an increase in electric power engineering projects. After two years of decline, residential construction rose 3.7% in part due to rebuilding activity following the Fort McMurray wild fires in 2016.

Wholesale trade grew 10.1%, largely due to significant increases in wholesaling of machinery and equipment and building materials and supplies. Transportation and warehousing was up 6.6%, as truck and rail transportation increased in tandem with goods production.

Real estate and rental and leasing increased 3.9% in part as offices of real estate and brokers posted their first increase since 2014. Retail trade rose 5.8% after two years of declines with increases in 11 of 12 subsectors.

British Columbia

In British Columbia, GDP rose 3.9% in 2017, following a 3.6% gain in 2016. British Columbia recorded the second highest rate of growth among the provinces after reporting the highest growth the two previous years. The contribution to the province's growth from services-producing industries (+3.6%) was more than twice that of goods-producing industries (+5.1%).

The 3.2% rise in real estate and rental leasing was tempered by a 6.5% drop in offices of real estate agents and brokers and activities related to real estate. This decrease, which follows double-digit increases in each of the previous three years, was partly due to the implementation of an additional 15% property tax on residential real estate property purchases by non-Canadian citizens or non-permanent residents in Metro Vancouver in August 2016.

Transportation industries grew 7.5%, with significant contributions from all modes as well as from support activities for transportation. Retail trade posted the highest growth among provinces for the third consecutive year, increasing 6.3% on gains across all 12 subsectors. Wholesale trade increased 8.3%, as all subsectors increased.

Among goods-producing industries, the construction sector contributed most to the growth, rising 9.9%. Engineering construction was up 48.7% mainly from oil and gas engineering construction partly due to new projects such as the Saturn Compressor Facility Expansion and the Towerbirch Expansion project in Dawson Creek, and the Ridley Island Propane Export Terminal in Prince Rupert. Residential building construction rose 2.2% while non-residential building construction fell 7.3%.

Manufacturing grew 4.5% as 15 of 19 industry subsectors showed increases. Primary metal manufacturing rose 9.8% as alumina and aluminum production and processing was up 12.4%. Wood product manufacturing, the largest manufacturing subsector in the province, declined 2.1% as sawmill and wood preservation operations were temporarily shut down due to the worst wildfire season in British Columbia since 1958.

Mining, quarrying, and oil and gas extraction decreased 0.5%, led by declines in copper, nickel, lead and zinc ore mining (-9.5%) and coal mining (-1.4%) while natural gas production edged up 0.3% following 13.8% growth in 2016. Support activities for mining and oil and gas extraction (+10.2%) was up for the first time since 2011.

Yukon

In Yukon, GDP decreased 1.4% in 2017, following an 8.3% increase in 2016. The decline was almost entirely due to a 43.4% drop in copper, nickel, lead and zinc ore mining following a 78.2% increase in 2016. In tandem, support activities for mining fell 26.3%, while gold and silver ore mining declined 4.6% following a 56.6% increase in 2016.

Construction rose 52.1%, led by other engineering construction as the development of the Eagle gold mine got underway. Non-residential building construction increased 28.0%, largely due to higher spending on institutional and government buildings as work on the Whitehorse General Hospital and the Whistle Bend care facility continued.

Services-producing industries grew 2.0%, down slightly from the 2.3% increase in 2016, as 12 of 15 industrial sectors increased. Higher tourism activity contributed to growth in air transportation and accommodation and food services.

Northwest Territories

In Northwest Territories, GDP grew 5.2% in 2017 after growing 0.8% in 2016. Goods output expanded 14.0% and contributed almost 90% of the territory's growth, while services output rose 0.8%.

Mining, quarrying and oil and gas extraction activity was up 29.0%. Diamond mining increased 68.2% as the Gahcho Kue mine completed its first full year of production. Conventional oil and gas extraction declined sharply when production at Norman Wells was brought to a halt in February as a result of pipeline safety concerns.

Construction decreased 10.7% as engineering construction declined 39.7% with the completion of the new diamond mine in 2016 and the opening of the all-weather road from Inuvik to Tuktoyaktuk. Non-residential building construction grew 25.9% as construction of a school expansion in Yellowknife began and work continued on the Stanton Territorial Hospital and the Hay River arena.

Among services-producing industries, retail trade grew 4.3% while wholesale trade declined for the fifth straight year. The halt in activities at Norman Wells was the main reason for the 1.2% decline in transportation and warehousing coming from lower pipeline transportation. Air transportation gained 11.3% as the territory saw an influx of international visitors and twice weekly trips from Calgary to Gahcho Kue began in July.

Nunavut

In Nunavut, GDP increased 13.3% in 2017, following a 1.9% gain in 2016. Mining, quarrying and oil and gas extraction (+29.0%) and construction (+48.9%) contributed the most to growth.

In mining, quarrying and oil and gas extraction, gold and silver ore mining increased 27.3% with the opening of the Doris gold mine, while iron ore mining increased 42.7% as production ramped up for the second year at the Mary River mine. The increase in construction mainly reflects the rise in other engineering construction as the development of the Meliadine gold mine got underway. Electric power engineering construction rose 29.1% as work progressed on major new power stations and upgrades to existing infrastructure. Transportation engineering construction declined 36.5% as the new airport in Iqaluit opened in August. Residential construction rose 17.8%.

Services-producing industries increased 3.6%. Wholesaling of machinery, equipment and supplies grew in line with higher construction activity. Retail trade was up 2.2%, the lowest growth rate in four years. Public sector services, which include education, health care and social assistance and public administration all contributed to growth.

Table 379-0031 ^1, 3
Gross domestic product (GDP) at basic prices, by North American Industry Classification System (NAICS)
monthly (dollars x 1,000,000)

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The data below is a part of CANSIM table  379-0031.  Use the  Add/Remove data  tab to customize your table.

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Geography = Canada
Seasonal adjustment = Seasonally adjusted at annual rates
Prices = Chained (2007) dollars

North American Industry Classification System (NAICS)	2017			2018
	October	November	December	January	February
footnotes
All industries [T001] 2	1,752,621	1,759,451	1,762,937	1,760,330	1,767,926
Goods-producing industries [T002] 2	522,276	527,000	527,849	525,269	531,381
Service-producing industries [T003] 2	1,231,277	1,233,453	1,236,059	1,235,971	1,237,615
Business sector industries [T004]	1,460,300	1,466,681	1,469,366	1,466,367	1,473,741
Non-business sector industries [T007]	293,792	294,300	295,053	295,379	295,759
Industrial production [T010] 2	374,595	378,673	379,949	376,528	381,661
Non-durable manufacturing industries [T011] 2	77,090	77,948	77,319	78,045	78,027
Durable manufacturing industries [T012] 2	102,971	105,487	105,175	105,352	107,279
Information and communication technology sector [T013] 2	77,380	78,342	78,785	79,342	79,839
Energy sector [T016] 2	172,218	172,127	174,494	170,775	173,509
Industrial production (1950 definition) [T017] 2	368,868	372,977	374,234	370,783	375,854
Public Sector [T018] 2	315,123	315,791	316,710	317,204	317,674
Content and media sector [T019] 2	12,514	12,528	12,475	12,306	12,437
Agriculture, forestry, fishing and hunting [11]	27,797	27,721	27,797	27,632	27,771
Mining, quarrying, and oil and gas extraction [21]	149,440	150,070	152,010	147,638	151,249
Utilities [22]	39,531	39,737	40,002	40,013	39,670
Construction [23]	124,993	125,708	125,261	126,195	127,127
Manufacturing [31-33]	179,996	183,289	182,319	183,267	185,063
Wholesale trade [41]	104,462	104,563	104,392	104,945	104,415
Retail trade [44-45]	98,271	97,694	96,581	96,368	96,679
Transportation and warehousing [48-49]	78,983	79,173	79,553	79,580	80,011
Information and cultural industries [51]	52,694	52,756	52,743	52,558	52,744
Finance and insurance [52]	122,617	122,958	123,687	124,070	124,592
Real estate and rental and leasing [53]	226,991	227,621	228,768	227,576	227,122
Professional, scientific and technical services [54]	96,690	97,220	97,781	97,617	98,188
Management of companies and enterprises [55]	10,844	10,821	10,868	10,821	10,848
Administrative and support, waste management and remediation services [56]	42,934	42,857	42,791	43,026	43,049
Educational services [61]	90,187	90,407	90,933	91,145	91,247
Health care and social assistance [62]	115,484	115,736	116,140	116,507	116,696
Arts, entertainment and recreation [71]	13,308	13,457	13,598	13,517	13,706
Accommodation and food services [72]	37,979	38,010	37,970	38,043	38,025
Other services (except public administration) [81]	33,024	33,111	33,087	33,090	32,952
Public administration [91]	109,504	109,702	109,712	109,635	109,811

Footnotes:

1.

Aggregates are not always equal to the sum of their components.

2.

The alphanumeric code appearing in square brackets beside the industry title represents the identification code of an aggregation of NAICS industries, whose definition is included in the full classification provided in the definitions, data sources and methods for the statistical program 1301 - Gross domestic product by Industry - National (Monthly).

3.

At the lowest level of detail, it may not be possible to produce a homogeneous series from 1997 to the present. Only industries and certain aggregates that provide good continuity back to 1997 have data from 1997 to 2006.

Source:  Statistics Canada. Table  379-0031 -  Gross domestic product (GDP) at basic prices, by North American Industry Classification System (NAICS), monthly (dollars),  CANSIM (database). (accessed: )

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/180502/dq180502a-eng.pdf

The Globe and Mail. 2 May 2018. Canadian economy rebounds with broad gains; experts eye July rate hike
DAVID PARKINSON

Statistics Canada reported that real gross domestic product rose 0.4 per cent month over month, the strongest one-month growth since last spring.

Canada’s economy surged in February, making up for a lacklustre start to the year, in a widespread upturn led by rebounds in the energy and auto sectors.

Statistics Canada reported that real gross domestic product rose 0.4 per cent month over month, the strongest onemonth growth since last spring, reversing course after a decline of 0.1 per cent in January.

Economists had expected the economy to rebound from January’s weakness, as both oil sands and auto plants came back up to speed from maintenance shutdowns, but the February growth was a bit stronger than their 0.3-per-cent estimate. And that growth was broadly based, with 15 of 20 industry sectors posting gains.

“The Canadian economy bounced back nicely after a difficult January,” National Bank of Canada senior economist Krishen Rangasamy said in a research report. “The breadth of increases is encouraging.”

The goods-producing side of the economy was responsible for much of February’s increase, up 1.2 per cent month over month. Services-producing industries posted 0.1-per-cent growth.

The goods rise was led by oil and gas extraction, which jumped 3 per cent, as oil sands producers recovered from a series of January production interruptions. Motorvehicle manufacturing jumped 4.2 per cent and parts output was up 3.4 per cent, as auto plants also returned from usual January downtime.

Over all, manufacturing was up 1 per cent month over month. The construction sector also had a solid month, up 0.7 per cent.

The services side was paced by a 0.3-percent rise in retail trade, halting a threemonth slide in the sector. Transportation and warehousing grew 0.5 per cent.

But the services segment was held back by weakness in real estate services, which fell 0.5 per cent. It was the first back-to-back drop in the sector in nearly eight years, reflecting the effects of regulatory changes aimed at cooling the country’s overheated housing markets.

Services were also hurt by a 0.5-per-cent drop in wholesale trade.

While the February recovery was encouraging, economists said it probably doesn’t change the outlook at the BoC, which is watching the pace of the economy carefully as it gauges the best timing for further interest-rate increases this year. With the economy running at close to full capacity, it’s all but certain that the central bank will raise rates again, following its three quarter-percentage-point rate hikes between July, 2017, and January, 2018. February’s solid momentum suggests that the economy likely grew at about a 1.5-per-cent-to-1.7per-cent annualized pace in the first quarter of the year – stronger than the 1.3 per cent the BoC estimated in its latest quarterly outlook last month, but not enough to put substantial additional pressure on the economy’s capacity and inflation.

“For the Bank of Canada, this report likely doesn’t change much, but reinforces the theme that the economy is in decent shape and can continue to move slowly but surely higher,” Bank of Montreal economist Benjamin Reitzes said in a research note. “Our call continues to be for the next rate hike to come in July, when we likely have more certainty around housing and NAFTA.”

ECONOMY

BANK OF CANADA. May 1, 2018. Bank of Canada policy helps manage risks from debt, Governor Poloz says. Yellowknife, Northwest Territories

Elevated household debts make the Canadian economy more vulnerable to events that could affect growth and financial stability, and the Bank of Canada’s cautious approach to monetary policy is helping manage the risks, Governor Stephen S. Poloz said today.

In a speech to the Yellowknife Chamber of Commerce, Governor Poloz said that high household debt levels are likely to persist for years and will continue to make the economy more sensitive to changes in interest rates than it was in the past. This issue is particularly important for the Bank now because the economy is operating near the limits of its capacity, he added, so higher interest rates will be needed over time to keep inflation on target.

“The economic progress we have seen makes us more confident that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed,” Governor Poloz said. “We will continue to watch how households and the entire economy are reacting to higher interest rates. And we will be cautious in making future adjustments to monetary policy, guided by incoming data.”

Canadian households have built up about $2 trillion of debt, including $1.5 trillion of mortgage debt. This debt stock is the natural consequence of a number of factors, including consistent strong demand for houses and a prolonged period of low interest rates that allowed borrowers to take out larger mortgages for the same payment size.

This debt is now a vulnerability, both for the whole economy and for highly indebted households who will face increased debt-service costs when interest rates rise. “We are closely watching the vulnerability represented by this group and the debt they carry, and how it poses a risk to both the financial system and the economy,” Governor Poloz said.

The Governor said that macroprudential policies—such as new mortgage regulations—are a welcome addition. Such policies “are helping reduce the economy’s vulnerability, since new borrowers will be more resilient than existing borrowers,” he said.

Household debt “poses risks to the economy and financial stability, and its sheer size means that its risks will be with us for some time. But there is good reason to think that we can continue to manage these risks successfully,” Governor Poloz concluded.

BANK OF CANADA. May 1, 2018. Canada’s Economy and Household Debt: How Big Is the Problem? Remarks. Stephen S. Poloz - Governor. Yellowknife Chamber of Commerce. Yellowknife, Northwest Territories

Introduction

Shakespeare wrote, “Neither a borrower nor a lender be.” Well, that may have been reasonable advice back in Hamlet’s day, but it is hard to imagine a modern economy like ours functioning under that dictum.

For most Canadians debt is a fact of life, at least at some point. Borrowing can help someone get a higher education, or buy a new car, or purchase a home. Simply put, debt is a tool that allows people to smooth out their spending throughout their life.

The amount of debt held by Canadian households has been rising for about 30 years, not just in absolute terms but also relative to the size of the economy. At the end of last year, Canadian households owed just over $2 trillion. Mortgages make up almost three-quarters of this debt.

While debt is indispensable for our modern way of life, it has been a growing preoccupation for the Bank of Canada for several years now. That is because high debt levels can make us vulnerable to negative events—individuals as well the entire economy.

There are two ways to look at this. Traditionally, our focus has been on the vulnerability of Canada’s financial system arising from elevated indebtedness. This means analyzing how our banks would manage a serious economic recession with high unemployment and increasing debt defaults. But the Bank is also focused on the vulnerability of our economy to rising interest rates, given high household debt. There is little doubt that the economy is more sensitive to higher interest rates today than it was in the past, and that global and domestic interest rates are on the rise.

So, today I want to talk about household debt in Canada—the dynamics that led to its buildup, how big a problem it is for Canadians now, and how we can manage the risks in the years ahead.

How did we get here?

Two trillion dollars of debt is a big number. Let us try to put some context around it. A common way to measure household debt is to compare it with the amount of disposable income people have. In Canada’s case, household debt is around 170 per cent of disposable income. In other words, the average Canadian owes about $1.70 for every dollar of income he or she earns per year, after taxes.

That ratio is a Canadian record, and up from about 100 per cent 20 years ago. Although this ratio is on the high side, other economies such as Sweden, Norway and Australia have even more household debt relative to disposable income.

This international comparison reveals some common factors. Like Canada, the countries I just mentioned have all seen decades of steadily rising house prices. They all have high rates of homeownership and deep, well-developed mortgage markets. Like Canada, mortgages in Australia are typically amortized over 25 to 30 years. In Norway and Sweden, you can find mortgages where the homeowner is only making interest payments, and the principal is passed on from one generation to the next.

Aspiring to own a home is part of our culture. It is also a way to build wealth for the future, as house prices have tended to rise faster than incomes. My colleague, Deputy Governor Larry Schembri, took an in-depth look at the drivers of house prices in a speech in 2015. He found many factors working on both supply and demand to push prices up.

On the supply side, Canada is a highly urbanized country, and many of our cities have land-use constraints that limit supply, such as green belts and other zoning restrictions. Geography, in the form of mountains and water, also helps to limit supply and support prices.

In terms of demand, several factors have reinforced an extended trend toward higher prices. These include demographics and a long period of low long-term interest rates. But the point I want to stress here is that when you combine a strong desire for homeownership with rising house prices, you will naturally find increasing levels of debt.

Monetary policy, demand and house prices

The connection between low interest rates, rising house prices and increasing debt levels is worth considering in more detail. The goal of our monetary policy is to deliver low and predictable inflation by keeping supply and demand in the economy in balance. If inflation is too low, we can lower our key policy interest rate and expect to stimulate demand for goods and services. When we raise interest rates, we expect to cool demand.

You would expect, then, that relatively low interest rates would lead to strong demand for housing. Looking back, mortgage rates shifted into a lower range in the late 1990s. In part, this reflected a global trend toward lower inflation and interest rates. But it also reflected the fact that the Bank of Canada had built some credibility around its inflation-targeting policy, which began in 1991. Canadians had come to expect that inflation would remain low, and interest rates moved lower accordingly. This is when our long-term rise in household debt took root.

The situation took another dramatic turn in the wake of the global financial crisis in 2008. Central banks slashed interest rates, in some cases to zero and beyond, and kept them at historically low levels for an extended period.

Internationally coordinated fiscal and monetary actions from 2008 to 2010 provided stimulus and helped the world avoid a second Great Depression. But our economy has struggled to gain traction in the last 10 years, not least because our recovery was interrupted by the collapse in oil prices in late 2014. Today, inflation is on target and the economy is operating very close to potential. However, given the lingering effects of the shocks we have faced, the economy still requires stimulus.

Let me make a very basic and important point here. Policy stimulus has a cost, whatever form it takes. Whether delivered by monetary or fiscal policies, stimulus encourages growth by bringing forward household spending and business investment, financed with debt.

I spoke about these debt dynamics in the Purvis lecture two years ago. If fiscal policy takes the lead in stimulating the economy, this can result in a buildup of government debt. If monetary policy takes the lead, this brings about a buildup in household debt. In both cases, stimulus leads to a buildup of debt over time, whether public or private. And excessive debt levels create a vulnerability, making the economy less resilient to future shocks. This is why policy-makers need to consider the debt consequences of the mix of fiscal and monetary policy.

The burden of debt

Ultimately, what matters most is the burden of servicing debt relative to income. In other words, the lower the interest rate, the more debt a given household can afford to carry. For this analysis, we look at the debt-service ratio, which is the required payments of interest and principal expressed as a percentage of income.

Remarkably, the aggregate debt-service ratio on mortgages for Canadian households has been very stable, remaining within a range of 5 to 7 per cent since the early 1990s. What this means is that Canadians have taken advantage of lower interest rates to carry a higher level of debt, thereby keeping the debt-service ratio fairly constant.

You can see how this would arise. Financial institutions are mainly interested in a borrower’s ability to service his or her debt out of regular income. So, lower interest rates make it possible to purchase a more expensive home. Further, with improved access to credit—in particular, the widespread use of home equity lines of credit, or HELOCs—it becomes largely a matter for households themselves to choose their overall level of mortgage debt, and to use that debt for a wider range of purposes.

Indeed, Canadians, regardless of their age group, are increasingly relying on mortgages. Among people under 35 years old, the percentage of homeowners with a mortgage has edged higher from about 85 per cent in 1999 to 90 per cent in 2016. For people in the 55 to 64 age bracket, the increase was more dramatic—from 34 per cent to 46 per cent. This casts a new light on that 170 per cent debt-to-income ratio I cited before.

Notice that the 170 per cent figure represents an average across Canadian households. It includes all those who have little or no debt, which means, to make the average level of debt so high, it also must include some very highly indebted Canadians.

In fact, about 8 per cent of indebted households owe 350 per cent or more of their gross income, representing a bit more than 20 per cent of total household debt. These are the people who would be most affected by an increase in interest rates. We are closely watching the vulnerability represented by this group and the debt they carry, and how it poses a risk to both the financial system and the economy. And it is important for these households to understand how personally vulnerable they may be.

In this context, recent changes to mortgage regulations are particularly welcome—including those that require people to show that they can service their debt at higher interest rates. These regulations are helping reduce the economy’s vulnerability, since new borrowers will be more resilient than existing borrowers. There are signs that these and other rules are working, as we are already seeing a significant reduction in the issuance of very high loan-to-income mortgages.

High debt levels and monetary policy

However, these regulations apply only to new mortgages. The stock of household debt, including the $1.5 trillion in existing mortgages, will persist. And this debt has increasing implications for monetary policy. As I said at the beginning, a significant issue for us now is gauging how much more sensitive consumers, and the whole economy, have become to changes in interest rates.

This is particularly important right now because the economy will require higher interest rates over time to meet our inflation goals. Given current levels of household debt, we expect that moves in our policy rate will have a stronger impact in cooling demand than they did in previous years. But this is a significant uncertainty—the sensitivity could be larger or smaller than we expect.

Since last July, the Bank has raised interest rates three times, taking the policy rate from 0.5 per cent to 1.25 per cent. However, it is still too soon to know just how strong an impact these moves will have. There are many reasons why interest rate changes take time—up to two years—to fully work through the economy. For example, consider that the majority of mortgages in Canada have a fixed interest rate, which is usually adjusted only at the end of the term—most often every five years. Those fixed-rate mortgages that have not been renewed since last July have yet to be affected by the interest rate increases. Some of the people renewing in the last few months may have been given a rate similar to the one they received five years ago. Of course, those who have opted for a floating rate—some 25 per cent of mortgages—have already seen their rate resetting higher.

That said, we are seeing some other evidence of the impact of higher interest rates. Banks have increased the interest rates on new loans—not just mortgages, but also other forms of consumer and business borrowing. We have also seen signs that the growth rate of borrowing has begun to moderate.

You may be wondering where interest rates are headed. We know there is some level for our policy rate that is considered neutral—where it will neither stimulate nor cool the economy. This neutral rate cannot be observed, and we do not control it. What is more, it can move around over time as the global and domestic economies evolve.

Despite this uncertainty, it is a useful reference point for central banks, for three reasons. First, the further the policy rate is from the neutral rate, the greater the impact on the economy. Second, because the neutral rate does change, any given policy setting can become less or more stimulative over time, even if the central bank keeps it unchanged. And third, if the neutral rate in an economy falls far enough, it may be difficult for a central bank to provide enough stimulus in the event of a serious downturn.

In our Monetary Policy Report (MPR) last month, we published our latest estimate of Canada’s neutral rate, saying it falls in a range between 2.50 and 3.50 per cent, assuming that all shocks affecting the economy have dissipated. At 1.25 per cent, our current policy rate is still well below our estimate of the neutral rate.

With supply and demand in our economy currently close to being balanced, you might expect our policy rate to be much closer to neutral. But several forces appear to be still acting to restrain the economy. We talked about these in the MPR. They include the new mortgage rules, ongoing uncertainty about US trade policy and the renegotiation of the North American Free Trade Agreement, and a range of competitiveness challenges affecting Canadian exporters. These forces will not last forever. As they fade, the need for continued monetary stimulus will also diminish and interest rates will naturally move higher.

Another benchmark for measuring monetary stimulus is the real rate of interest, defined as our policy rate, less the rate of inflation. Today, our inflation-adjusted policy rate stands at -0.75 per cent. As the economy progresses and the forces acting against it fade, the need for an inflation-adjusted policy rate below zero is steadily diminishing.

Managing the risks

All this to say that we are becoming more confident that the economy will need less monetary stimulus over time. Still, as we approach every interest rate decision, we need to consider all the risks the economy is facing relative to our forecast, including those related to household debt.

If we raise rates too quickly, we risk choking off growth and falling short of our inflation target. If we move too slowly, we risk a buildup of inflation pressures that would cause an overshoot of our inflation target. At the same time, moving too slowly would mean a further accumulation of household debt and rising vulnerabilities, while moving too quickly could trigger the sort of financial stability risk we are trying to avoid.

As you can imagine, getting the path of monetary policy right involves a lot of judgment. Bank staff have recently developed an important new way to evaluate these trade-offs and help inform this judgment, and we are publishing a staff analytical note today on this work.

Briefly, the framework uses our models to calculate the risks to the economy associated with various hypothetical interest rate paths. By examining many such paths, we are able to sketch the trade-offs involved in choosing any particular path. Intuitively, higher interest rates will mean slower economic growth; but they will also mean reduced financial vulnerabilities. As a result, the impact on the economy of a major financial stability event would be less.

From this starting point, the framework then allows for the inclusion of macroprodential policies, such as the new mortgage guidelines. By reducing financial vulnerabilities directly, macroprudential policies improve the trade-off policy-makers face in choosing when to adjust interest rates higher. Put another way, macroprudential policies allow monetary policy to deliver similar results for growth and inflation without exacerbating financial vulnerabilities.

Conclusion

It is time for me to conclude. If Shakespeare were writing today, he might say that our financial system gives Canadians more choices than ever in deciding whether to be, or not to be, in debt. Today’s record level of household borrowing reflects the evolution of the financial system and the comfort level of Canadians in taking on debt. But it also reflects a prolonged period of very low interest rates and rising house prices.

At the Bank of Canada, we have been watching these debt levels closely because of the growing risks they pose to financial stability and the economy. We know that a portion of Canadian households are carrying large debts, and the concern will become larger for them as interest rates rise. Of course, higher interest rates would likely reflect an economy that is on even more solid ground and less prone to a major economic setback. Furthermore, our financial system is resilient, and the new mortgage rules mean that it is becoming progressively more so. Even so, our economy is at risk should there be an unexpected increase in bond yields or a global slowdown, because both effects would be magnified by their interaction with high household debt.

Ultimately, the Bank’s job is to look at the economy as a whole and judge the outlook for inflation. Today, the view is quite good, even with the shadow cast by household debt. This debt still poses risks to the economy and financial stability, and its sheer size means that its risks will be with us for some time. But there is good reason to think that we can continue to manage these risks successfully. The economic progress we have seen makes us more confident that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed. We will continue to watch how households and the entire economy are reacting to higher interest rates. And we will be cautious in making future adjustments to monetary policy, guided by incoming data.

I would like to thank Jing Yang for her help with this speech.

The Globe and Mail. 2 May 2018. Poloz cautious on rate hike amid high debt levels. Rising borrowing costs, NAFTA uncertainty weigh on a central bank eager to guide the growing economy away from low rates
BARRIE MCKENNA

Bank of Canada Governor Stephen Poloz is grappling with powerful and conflicting economic forces that are complicating his efforts to wean the economy off the low interest rates that are fuelling excessive borrowing.

On the one hand, the economy has picked up momentum and is running near full capacity, with unemployment lower than it has been since the 1970s, making extremely low interest rates no longer necessary.

And yet, in a speech on Tuesday in Yellowknife, Mr. Poloz also highlighted a host of reasons for moving cautiously, including the vulnerability of heavily indebted households as borrowing costs rise, uncertainty over the North American free-trade agreement and lingering effects of the 2008-09 financial crisis.

In spite of all that, Mr. Poloz said the central bank is now “more confident” of the need for higher interest rates. He said the economy is healthy, in spite of the “shadow” cast by record household debt.

“This debt still poses risks to the economy and financial stability, and its sheer size means that its risk will be with us for some time,” he said. “But there is good reason to think we can continue to manage these risks successfully.”

Economists said Mr. Poloz is preparing borrowers and investors for a continuation of gradual rate hikes over the coming months. The central bank has raised its key interest three times since last June.

“That rates are going up is not a hard call to make,” said Toronto-Dominion Bank economist Brian DePratto. “The key question is when.”

Much of Mr. Poloz’s speech focused on the dangers of rising household debt. But Mr. DePratto pointed out that that the central bank is “largely responsible” for the problem, and has the power to stop it.

“You don’t have to be an economist to know that raising the price of something lowers its relative appeal,” he said.

The Bank of Canada will continue “tapping the brakes” with rate hikes, perhaps as early as its next ratesetting announcement on

May 30, Bank of Nova Scotia economist Derek Holt said.

The rate now stands at 1.25 per cent. Most economists expect at least one more increase this year. After May 30, the next rate-setting announcement is July 11.

Several major lenders, including Royal Bank of Canada and Toronto-Dominion Bank, raised their posted rates on fixed-rate mortgages in recent days, after sharp increases in government bond yields. RBC’s official rate on a fiveyear mortgage is now 5.34 per cent, up from 5.14 per cent.

Higher rates coincide with an economy that appears to be perking up. Statistics Canada reported on Tuesday that the economy surged in February after a slow start to the year. Real gross domestic product rose 0.4 per cent month over month, the strongest one-month growth since last spring, reversing course after a decline of 0.1 per cent in January.

The debt of Canadians has been steadily rising over the past 30 years relative to the size of the economy and to incomes. The $2-trillion of total debt includes $1.5trillion in mortgages.

The average Canadian now owes $1.70 for every dollar they earn in a year – up from $1 of debt for every $1 of income 20 years ago.

And the share of Canadians with a mortgage is also up sharply, particularly for homeowners between the ages of 55 and 64, he said.

The central bank is keeping a wary eye on people with extremely high debt relative to income. Mr. Poloz said about a fifth of that debt is held by households that owe at least 350 per cent of their annual gross income.

And he issued a pointed warning to these borrowers about the dangers posed by rising rates or a loss of a job on their ability to repay: “It is important for these households to understand how personally vulnerable they may be.”

The BoC faces a tricky balancing act. Strong demand for housing and a long period of low interest rates swelled debt. But the wider economy still needs stimulus because of economic weakness related to the 2008-09 financial crisis, Mr. Poloz said.

Competition Bureau Canada. April 27, 2018. Populism, Public Interest and Competition. Speech. Speech by John Pecman, Commissioner of Competition. C.D. Howe Institute, Toronto, 67 Yonge Street, Suite 300

Introduction

Thank you for the opportunity to be here. It’s my second time at this roundtable luncheon, actually, so I must have done something right the first time. I have to be honest, when I started working at the Bureau almost 35 years ago, I never envisioned myself standing before a group of people talking about the pitfalls of “hipster antitrust”. In fact, I never thought that I would take part in any conversation that involved the words “hip” and “antitrust” being used in the same sentence—and neither did John Grisham, the best-selling author who, in his book “The Street Lawyer” described anti-trust as “hopelessly dense and boring.”

And when I refer to hipster antitrust, what I am talking about is the idea that public interest considerations—ranging from impacts to democracy and culture to inequality and industrial policy—should be injected into competition enforcement. This approach is gaining further support with increasing concerns—and I may even say “fear”—regarding big data.

As many of you know, the Competition Bureau has been actively engaging on these issues over the past year. So let me shed some light on big data, and share our views on the so-called hipster antitrust approach. And then let’s talk about what competition can and should do to support innovation.

Big Data

Let’s start with big data. Advancements in information technology have led us into the age of data and toward what is an increasingly data-driven economy. Along with this has come concern about how big data is being used—or perhaps misused—by some of the largest companies in the digital space. These concerns have given rise to a very lively and passionate discussion about what should be done about it. I think it goes without saying that big data has become the “issue du jour” and there is a considerable amount of angst surrounding it—particularly as it relates to the tech giants that have become household names.

Big data represents big promise: the opportunity for the creation of innovative products and services that improve consumers’ lives. Google is an obvious example of this –from g-mail, to its android operating system, to its smart home devices such as Google Home and the very search engine itself. Did I mention they are also presently working on an automated vehicle? These types of innovations have transformed Google, and other tech firms, into some of the largest companies in the world.

However, many have expressed concern about their ever-increasing size and market power, as was noted recently by the Senior Deputy Governor of the Bank of Canada.

Again, this fear is not without precedent. Throughout history, there has been a compulsion to equate “bigness” with “badness”, and so-called big data has been no exception to this rule. Over a century ago, during the second industrial revolution, when electrification and railroads were the innovation of the day—providing the infrastructure that facilitated the growth of corporate titans—these same concerns arose over substantial increases in industry concentration. And not just concentration, but the rise of conglomerates who were active in multiple unrelated businesses. Just as we find today with Amazon online retail, Amazon cloud services, and Amazon’s activity in grocery (Whole Foods). Some say that in the early 1900s these concerns turned Teddy Roosevelt into a ‘trust-buster’. Indeed, Roosevelt benefited greatly from the popular angst about big firms and was skillful in channelling that angst into policy that espoused modern and somewhat progressive antitrust thinking. Roosevelt said in his 1902 State of the Union Address “We draw the line against misconduct, not against wealth. The capitalist who, alone or in conjunction with his fellows, performs some great industrial feat by which he wins money is a well-doer, not a wrongdoer, provided only he works in proper and legitimate lines.”[i] And so it seems that Roosevelt, the revered trust-buster, was not concerned about size or breadth, but rather whether a company was engaging in harmful anti-competitive conduct. His work also demonstrated that populism and popular angst can be channelled into effective public policy if a thoughtful, evidence-based and measured approach is adopted. Indeed, as Roosevelt envisioned, where technology companies engage in anti-competitive acts, the Bureau does not hesitate to investigate and take action where there is evidence of competitive harm.

Enforcement

It’s important to acknowledge that the term “big data” may be new, the phenomenon itself is not. Firms have been compiling and using data for years—for example, Dunn & Bradstreet which sells data about companies, started in the mid-19th century[ii]—and competition agencies have dealt with data on numerous occasions.

The Bureau is no exception. We have been active in big data related cases for years, dating back to the A.C. Nielsen case in 1995[iii], in which the Bureau alleged that Nielsen contravened abuse of dominance provisions by restricting competitors’ access to scanner data, thereby preventing new entrants from accessing the market. Since that time, the Thomson - Reuters merger, as well as our more recent case against the Toronto Real Estate Board for restricting access to MLS data, have both dealt with big data-related issues. Big data enforcement remains an important and topical subject, and while the underlying concepts may not have changed, we know that the frequency with which we will encounter these issues is likely to increase.

For this reason, the Bureau is actively engaged in the debate and continues to provide transparency about our thinking. Since the Fall, we have released two documents on this topic—a white paper and a synthesis document. These internationally award-winning papers, and our related consultations, have helped us develop our own internal thinking and advance the public discourse.

Our analysis of big data has led us to conclude that the key principles of competition law enforcement remain valid in big data investigations. In other words, the existing competition enforcement framework is up to the task of addressing issues that arise in big data investigations. Let me expand on that a bit—competition law enforcement is evidence based. What this means is, if competition is being harmed in the marketplace, we will take action. Conversely, if competition is not being harmed, we won’t. In other words, what we won’t do is take enforcement action based solely on mere theories of long-term potential harm to competition—perhaps derived from a fear about the “bigness” of a firm. We know that this could cause more harm than good. Now, there are elements of competition law enforcement that involve predictive analysis. But we will always ground our decisions to take action in hard facts supporting the potential for competitive harm.

Consider the anxiety that algorithmic collusion has elicited[iv] among some within the competition community[v] - I am speaking specifically here about the idea that algorithms will at some point collude without any human involvement. I think it’s unwise for competition authorities to take steps to curtail businesses’ use of algorithms based on a potential concern, especially in the absence of empirical evidence to suggest that concern is merited. And investing time investigating theoretical algorithmic collusion means moving scarce resources away from other areas where we know there is harm being done to the economy.

Whether justified or not, the fact remains that consumers continue to be concerned about the rise of big tech companies. This is sometimes tied to the level of concentration that exists in the marketplace. But it is more often tied to factors other than antitrust—take for example Facebook’s data being mined by 3rd parties with perhaps less-than-benevolent interests. This recent revelation has spurred House of Commons hearings in Canada and congressional hearings in the US, as well as an investigation by Canada’s Privacy Commissioner. Undeniably, the big tech firms are big firms. But they are not big in a way that is historically unprecedented. At the end of 2007, Exxon Mobil was one of the largest US firms and comprised a little over 3% of US GDP. At the end of 2016, Apple was the biggest US firm and comprised about 3% of US GDP[vi]. So I think it is fair to say that size is not the only thing that matters. Clearly, what also matters to people are fears about whether the behaviour of these big firms is bad for society—the thinking that small, independent retailers cannot survive in an Amazon world, or that Facebook is undermining democracy, or Google is trampling our privacy rights, or, more generally, that technical innovation itself is exacerbating inequality. These may be valid concerns—but they are not all antitrust concerns.

Public Interest

A lot of these concerns have been humorously coined “hipster antitrust”. But it’s not just a bunch of plaid-wearing, craft beer drinking, 30-somethings who are making these claims. Articles from news outlets like the Washington Post and the New York Times have echoed these calls, with headlines proclaiming that monopolies represent an existential threat to democracy, linking declining competition to deepening inequality and calling for changes to antitrust legislation. Both the Harvard Business Review and The Economist appear to have taken up the cause, arguing that changes to competition law are needed to address the “data economy”. Perhaps most notably, the US Democrats have made expanding merger reviews to include public interest considerations a key part of their “Better Deal” platform[vii].

I want to be clear that my intent is not to diminish the legitimacy of public interest concerns—indeed issues like democracy, privacy, and inequality are fundamentally important and unquestionably need to be addressed to build a fair, just and successful society.

The right question is whether antitrust is the appropriate tool to remedy social issues like inequality and unemployment. And I am greatly concerned by any suggestion that competition law should transition away from an economics-based, consumer welfare standard toward a value-based public interest standard. The rationale for my concern is simple: competition law is most effective when it operates with clear and objective criteria and injecting public interest concerns into competition law prevents that from happening. Moreover, doing so injects politics into the process and politics, as we know, is best left to the people we elect to do that job—politicians. Competition authorities—as unelected bodies—are particularly unsuited to making value judgments; in fact, it’s the very antithesis of our role, which is to perform objective, rigorous analysis. There are other policy instruments that are far better suited to addressing social and cultural objectives.

There are also very good models for how to achieve this without requiring competition authorities to undertake value judgments that they are not trained, equipped or suited to do. For instance, the German competition authority, the Bundeskartellamt examines only competition issues and its legislative framework establishes a strict separation between competition and non-competition issues. The framework, however, also enables the government, through its Minister of the Economy, to overturn merger decisions on the basis of public interest considerations, provided that it is done in a justifiable and transparent manner. This “safety valve”, as it is called, is by design meant to only be used in exceptional cases and accordingly, it happens very infrequently—only nine times since the provision was enshrined in law in 1973.[viii]  This approach recognizes that public interest concerns sometimes take precedence, but provides a far better model for addressing those concerns. It removes value-based assessments from an unelected enforcement agency and places them, appropriately, with the government that is directly accountable to the voters it represents.

Legislators have a tough job, balancing multiple—and often competing—interests. But it is extremely important that they not act reflexively in their response to these interests, using competition enforcement as the cure-all for society’s ills. They should, as Teddy Roosevelt did, leverage the public pressure constructively—to craft thoughtful and effective public policy.

Efficiencies

"Now I've just spent a lot of time talking to you about what competition authorities should not be doing, I want to turn your attention to what they should be doing. But before I do, and in that same vein of what agencies, legislators and regulators should be doing, I am sure that you are aware of the recent Supreme Court of Canada decision in Comeau. The Bureau has been monitoring this case closely. While the Supreme Court has provided clarity regarding the rules on interprovincial trade, I believe that legislators and regulators should continue to examine laws and regulations to ensure that they are crafted in a way that achieves public policy objectives without unduly restricting competition.” At the outset of my speech, I talked about big data as an example of innovation—and you know, sometimes I dislike using that word because it feels like we can’t go through a day without hearing it. But this is not news to any of us. As I’ve said in the past, we are—across the globe—in the midst of what I like to call the great innovation conversation. And there are a number of good reasons for this—innovation holds the key to economic success in the short term and the long term. It facilitates the creation of better products and services, enables firms to reduce costs and increase productivity, and is key to inclusive growth in the rapidly evolving digital economy. In short: it’s good for business and good for consumers.

So naturally, everyone—from legislators and policy-makers, to the media, to academics, wants to talk about innovation and how to breed it—in our boardrooms and in our classrooms. And we talk about doing this through things like attractive tax policy, building superclusters, direct investment and skills training.

My role in this is to make sure that competition—one of the most critical contributors to innovation—doesn’t get left out of the conversation. Competition and innovation are inextricably linked—competition drives innovation. Without competition from rivals in a dynamic marketplace, what would drive companies to improve? How is the “next Google” going to unseat the current Google if not through competition?

There is considerable evidence that underscores how critically important competition is to innovation, economic growth and prosperity for all. And so, I believe firmly that it is my job, and the job of my colleagues at the Bureau to strive not only to ensure that competition is part of the conversation, but to ensure that our enforcement framework is best positioned to support innovation.

As I have said previously, this is generally the case. But there continue to be areas of our legislation that are harmful to competition, innovation and ultimately to the Canadian economy.

I am, of course, referring to section 96 of the Competition Act—the efficiencies defence.

I have made no secret of my belief that, unlike innovation, the efficiencies defence is bad for business and bad for consumers. It is also out of line with the approach being taken by many of our country’s major trading partners, including most notably, the United States.

Our decision in Superior/Canexus is indicative of this. We worked closely with our U.S. counterparts on this merger review, both reaching the conclusion that the merger was likely to have anti-competitive effects; namely, higher prices and less choice. Our approaches, however, vastly differed—the U.S. could and did challenge the merger under their law, which requires claimed efficiencies to be passed on to consumers, making consumer welfare a primary concern. The Bureau, on the other hand, did not challenge the merger, owing to section 96.

This approach sees Canada accepting reductions in competition in exchange for static and short-run fixed cost savings, which may or may not come to fruition post-merger—and I’d like to expand a little further on why that’s a problem.

In the 1960’s, economist Harvey Leibenstein brought us the concept of x-inefficiency[ix], which tells us that firms that are not spurred to innovate become complacent and inefficient—and this has been borne out in the 50 years since then. We know that it is competition—and the opportunity to become a leader—that is forcing innovation and efficiency. And let’s be clear, innovation isn’t just a better paint roller, it’s about process and best practices. Take for example modern accounting principles, arguably one of the greatest innovations of the 19th century. It was born directly from competition between railroad companies as they struggled to outdo each other in terms of efficiently running and controlling very large organizations.

There is considerable public evidence that firms not subject to competitive pressure become very inefficient and fail to innovate.

Let’s look at a Canadian example. We in Canada have become quite proud of our comparatively nascent wine industry and with good reason—Canada’s vintners make a high-quality product that is in demand throughout the world. But this has not always been the case. Prior to the 1987 Canada U.S. Free Trade Agreement, Canada’s wine industry had been insulated from competition and not surprisingly, not up to the challenge of competing internationally[x]. The FTA put an end to that protection, forcing growers to innovate or close shop. The result: a dramatically altered and highly competitive industry boasting innovative and unique products and entirely new lines of business such as tourist attractions[xi]. This, coupled with the establishment of VQA standards, has led Canada’s wine industry to a strong reputation internationally—and is a perfect case study of how competition drives innovation. This also means that I can now enjoy some great local wine from the Niagara region, where I grew up!

So, I’ve left you with a lot to digest—and I want to make sure we have some time to unpack it in the Q&A.

But let me leave you with one more thought: knowing what we do about the inextricable link between competition and innovation, the question we should ask ourselves is this—why are we exchanging what evidence has demonstrated are hugely important gains from dynamic competition for the “small potatoes” of static improvements in efficiency? While there have been some arguments in favour of this approach—including a recent C.D. Howe paper which argued that allowing firms to achieve short-run, static efficiencies under section 96 is critical to innovation—they fail to acknowledge the dynamic efficiencies that are brought about by competition, which dwarf these section 96 efficiencies.

Furthermore, the creation of market power in certain sectors of the Canadian economy as a result of the efficiencies defence is without question raising the costs of key inputs for firms operating in Canada, including exporting sectors of the Canadian economy that rely on competitively priced inputs to compete internationally. Believe me, there are many more companies that complain about facing market power and higher costs than there are merging parties touting fixed-cost savings.

In a powerful obiter in the Supreme Court’s Tervita decision, Justice Rothstein noted that the case did not appear to reflect the policy considerations that Parliament likely had in mind in creating the efficiencies defence. Based on my 34 years’ experience, I can tell you that this rationale extends to cases beyond Tervita.

As far as I am concerned, we need to be careful not to be penny wise, pound foolish when considering the impact of mergers on the Canadian economy and it’s high time we reassess the desirability of the efficiencies defence to promote an innovative and competitive economy, especially in regard to international competition. There are considerable benefits to be realized for the Canadian economy and those that participate in it, by bringing our approach to efficiencies in line with that of other modern competition enforcement agencies. It is my sincere belief that Canada should move forward with doing so.

With that, why don’t we move on to the Q&A? I look forward to our discussion, and if that goes well, perhaps I can expect a third roundtable luncheon invite!

Notes

[i] http://www.presidency.ucsb.edu/ws/index.php?pid=29543
[ii] http://www.dnb.com/ca-en/about-us/company/history.html
[iii] Director of Investigation and Research v. D&B Companies of Canada Ltd (A.C. NIELSEN) (1994).
[iv] https://www.economist.com/news/finance-and-economics/21721648-trustbusters-might-have-fight-algorithms-algorithms-price-bots-can-collude
[v] https://globalcompetitionreview.com/article/1144015/whish-urges-restraint-on-algorithmic-collusion
[vi] FT 500—2007 and 2017
[vii] https://abetterdeal.democraticleader.gov/crack-down-on-abuse-of-power/
[viii] https://one.oecd.org/document/DAF/COMP/WP3/WD(2016)3/en/pdf
[ix] https://msuweb.montclair.edu/~lebelp/LeibensteinXEffAER1966.pdf
[x] http://www.csls.ca/reports/csls2008-3.pdf
[xi] https://www.ic.gc.ca/eic/site/cprp-gepmc.nsf/vwapj/Compete_to_Win.pdf/$FILE/Compete_to_Win.pdf

AVIATION

THE GLOBE AND MAIL. MAY 2, 2018. Bombardier wins over key institutional investors ahead of annual meeting
NICOLAS VAN PRAET

MONTREAL - Bombardier Inc. has made enough progress on governance issues and with its turnaround effort over the past year to avoid another clash with institutional shareholders ahead of the company’s annual meeting Thursday. But some investors say the company still falls short of best practices in key areas.

Proxy advisory companies Glass Lewis and Institutional Shareholder Services are both recommending investors support the company’s full slate of directors as well as its executive compensation policy. Canadian Pension Plan Investment Board is among those heeding the advice, signalling on its website that it will back all 14 board nominees as well as the company’s pay practices.

Bombardier’s largest outside shareholder, the Caisse de dépôt et placement du Québec, is also voting in favour of the company’s executive compensation plan. It says the performance of Chief Executive Alain Bellemare’s management team getting the company back on track after a brush with bankruptcy justifies their 12 per cent pay hike last year.

“We think you have to recognize the remuneration being received by the management team,” Caisse chief executive Michael Sabia told lawmakers in Quebec City Tuesday afternoon. “Is it perfect? No. Is the company in full evolution on several levels? I think so, yes. And I believe we contributed to a profound reflection by the company’s board and management team last year” on certain issues including pay.

The pension fund manager owns roughly 30 per cent of Bombardier’s train business, which it bought in late 2015. The unit has seen a significant improvement in performance under Mr. Bellemare, which is lifting the company as a whole, Mr. Sabia said. Asked what he thought about Bombardier ceding majority control of its flagship commercial airline, the C Series, to Airbus for no cash compensation, Mr. Sabia said it was “a reasonable transaction” given the competitive challenges the aircraft faced.

Bombardier shares inched up 0.26 per cent in morning trading Wednesday, to $3.88. They’ve gained 75 per cent over the past year.

The company was in the throes of a public storm one year ago following its decision to boost the 2016 pay of its top executives by nearly 50 per cent after taking more than US$1-billion in taxpayer aid. Quebeckers held street rallies denouncing the plan and lawmakers who’d supported the company expressed their discomfort. After Bombardier corrected course and delayed most of the payments, several of the company’s big investors weighed in and admonished the manufacturer for what they said was a corporate-governance lapse. They said Bombardier’s board had failed to properly appreciate and balance the interests of its stakeholders, including governments and communities.

Several large pension funds, including the Caisse and Ontario Teachers’ Pension Fund, then called for a shakeup of the Bombardier board, saying the company should be chaired by an independent director and withdrawing their support for Pierre Beaudoin as executive chairman. He subsequently relinquished his executive duties but stayed on as chairman, winning re-election to the board with roughly 92 per cent support. The company’s revised executive compensation policy was approved with 93.5 per cent support.

Mr. Beaudoin’s family controls Bombardier through a special class of shares with 10 votes each, giving it about 52 per cent voting control despite owning less than 20 per cent of the equity. The company doesn’t break out the results of votes by class so it’s difficult to get an accurate picture of how shareholders not affiliated with the family voted.

“This year, there are fewer things that could blow up and become controversial,” said Mehran Ebrahimi, professor of management at the Université du Québec à Montréal. There are issues that are still aggravating for some investors, like Bombardier’s dual class share structure, but the company’s improving finances and partnership with Airbus has helped blunt much of the criticism, Mr. Ebrahimi said.

Shareholder rights group Médac will present four proposals to shareholders at Thursday’s meeting, including a proposal calling on Bombardier’s board of directors to discuss at the meeting the changes it made to the compensation policy over the past year. Most of the proposals will likely be voted down.

Excluding Pierre Beaudoin, remuneration for Bombardier’s five most senior executives rose 12 per cent in aggregate in 2017 versus the year before, to about US$31-million. Not counting exchange-rate fluctuations, total pay rose 10 per cent. Mr. Bellemare earned US$10.6-million, an increase over the US$9.5-million he earned the year before, making him Quebec’s top-paid CEO last year.

Bombardier spokesman Simon Letendre said the company reviews its approach to executive compensation every year to make sure it is line with peer groups of global companies of comparable size and complexity and seeks advice from advisory firms Mercer and Meridian in this effort. With input from investors, Bombardier has provided more disclosure in the 2018 proxy circular on performance measures and targets, individual achievements and the decision-making process for incentive awards, he said.

The composition of Bombardier’s board is also changing. Pierre’s father Laurent Beaudoin, who is widely credited for building Bombardier into the manufacturing multinational it is today through shrewd dealmaking, will not stand for re-election Thursday. Board members Sheila Fraser and Patrick Pichette are also leaving the company. In all, 9 of Bombardier’s 14 directors will be independent if the proposed candidates are elected at the meeting.

That’s still not good enough for British Columbia Investment Management Corporation, which manages the nest eggs for B.C.’s public sector workers. It is voting against all non-independent directors on the ballot except Mr. Bellemare because the board’s independence level does not meet its guideline of two-thirds representation. It is also voting against the company’s executive compensation approach, saying it does not sufficiently align pay with performance and still lacks disclosure.

Mutual fund company NEI Investments is also among Bombardier shareholders who say more needs to be done to improve governance, even if it acknowledges the manufacturer has made efforts to address investor concerns. One issue it singles out is the large peer group Bombardier uses to set pay for most of its top executives, with many of those peers being larger U.S.-based companies that typically pay management more.

“We find it a little awkward that the company is kind of focused on the U.S. when it comes to the pay but then when the company has faced problems, it’s very much a Canadian company at that moment,” said Michelle de Cordova, director of corporate engagement and public policy at NEI. “When the company needs [public help, I mean]. We think there’s a little but of a contradiction there.”

REUTERS. MAY 2, 2018. Exclusive: Bombardier and Airbus unveil leaders of new CSeries partnership - memo

MONTREAL, PARIS (Reuters) - Bombardier (BBDb.TO) and Airbus (AIR.PA) unveiled to employees the top leaders for the CSeries program, in a further step towards finalizing a deal that will see the European planemaker taking control of the Canadian jetliner, according to a memo to staff on Wednesday that was seen by Reuters.

Philippe Balducchi, head of performance management for Airbus Commercial Aircraft and well known to analysts as a former head of investor relations, will be CEO of the 12-executive team that includes six members from each planemaker, according to the memo to employees signed by chief executives from both companies.

The two companies could not be immediately reached for comment.

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Reporting By Allison Lampert; Editing by Denny Thomas and Chizu Nomiyama

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LGCJ.: