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OTTAWA – Wait until next year.
It’s a familiar refrain for sports teams, but the premise is getting old for Canadians awaiting the return of an economy that can be counted on for jobs, solid incomes and financial security.
As far back as 2010, the Bank of Canada held out the prospect of better times in the year ahead. But unexpected events — whether it was a tsunami in Japan, a debt crisis in Europe, or political shenanigans in Washington — always took the shine off the optimism.
“If you were looking for a theme song for the Canadian economy, it would either be ‘With a Little Help from my Friends,’ or, alternatively, Led Zeppelin’s ‘The Song Remains the Same,’ ” says Craig Alexander, TD Bank’s chief economist.
He says we’re still waiting for a hand-off from consumer-driven growth.
“We are going to eventually get this rotation toward exports and business investment and away from real estate and consumer spending. We said that would happen in 2013. It didn’t happen. Now we’re saying it is going to start next year,” Alexander said.
TD, like the Bank of Canada and a consensus of economists, is estimating growth will rebound to about 2.3 per cent in 2014. That would follow two years of sub-par growth at 1.7 per cent in 2012 and an estimated 1.7 per cent growth this year.
The improvement foreseen for 2014 is not much of a bump and won’t lead to massive job creation and steep income growth. But the difference between 1.7 per cent and 2.3 per cent is important.
The Bank of Canada believes economy has the “potential” to grow about two per cent. At 1.7 per cent, the economy has underachieved its potential whereas, at 2.3 per cent, the economy can eliminate slack and head toward full recovery.
The central bank thinks 2015 will see the gap close further with 2.6 per cent growth, enabling the economy to return to health by the middle or the end of that year.
The other important distinction is the composition of growth.
According to the central bank and others, 2014 will be the year the economy finally enters the zone of what Bank of Canada governor Stephen Poloz calls self-generating, self-sustaining “natural growth.”
That is critical because Canada, for the past three years, has experienced a kind of un-natural recovery.
Yes, it has recouped all it lost during the recession in terms of output and jobs, but a persistently low inflation reading and continuing slack in production capacity suggest something has not been quite right.
Growth was achieved primarily at first because federal and provincial governments pumped tens of billions of dollars into the economy — all of it borrowed.
The Bank of Canada — as well as its U.S. counterpart — has also kept interest rates at or near rock bottom, encouraging businesses and households to borrow money and spend.
Snatch away the stimulus measures and Canada, some say, would most likely still be in recession.
CIBC chief economist Avery Shenfeld there was nothing fundamentally amiss about Canada’s domestic economy before 2008 when the world’s financial system was dealt a severe blow by a meltdown in the U.S. real estate, which spread to banking and other industries.
While Canada’s economy initially emerged from the 2008-9 global recession in relatively good shape, it has limped along more recently amid weakened demand for many of the country’s major exports.
“Part of the reason Canada hasn’t seen the lift in capital business spending is because the rest of the world has disappointed us,” Shenfeld said.
“Interest rates have been low, financing has been available, but unless you are sure the product demand is going to be there, it’s hard to trigger a boom in capital spending. So a brighter global economy could see a return in capital spending in the resource in sector, which is part of that rotation that’s been missing.”
That’s where a little help from our friends, particularly the United States where 75 per cent of exports end up, will go along way to curing Canada’s ills, say analysts.
Optimism for 2014 is tied to how quickly the U.S. recovers and how much that boosts Canadian exports. The Royal Bank is among the most optimistic, pencilling in a 2.6 per cent expansion next year, and 2.7 the year after that, which will more quickly close the output gap and get the Bank of Canada to raise interest rates in 2015.
Exporters will also benefit from a swooning loonie, analysts say, because, by comparison, the U.S. economy will outperform Canada’s. The loonie has already lost about six per cent in value in the past year and now hovers around 94 cents US. By many estimates, it could be at least as low as 90 cents by the end of 2014.
With all these factors in Canada’s favour, it’s a wonder the economy won’t do better. But the Bank of Canada has noted that exporters haven’t kept pace, given the rebound in the United States, so they won’t likely benefit as much in 2014 as they have historically.
Part of the reason, says governor Poloz, is that the country lost about 9,000 exporting companies in the aftermath of the 2008-09 recession.
Alexander, TD’s chief economist, lists other factors: an increase in the number of right-to-work states in the U.S. that have brought down labour costs; a shale oil and gas revolution; and low gas prices that have decreased energy input costs for a lot of U.S. manufacturers.
“And we’ve had really strong productivity growth in the U.S.,” Alexander added. “So U.S. manufacturing is far more competitive than it was before and that makes it much tougher for Canadian exporters.”
The consensus view assumes that the modest pick up in exports, which will lead to companies investing in machinery and equipment in order to become more competitive exporters, won’t be counterbalanced by a retrenchment in the household sector and in housing.
Taking the contrary view, as does David Madani, the chief analyst at Capital Economics, leads one to the conclusion that 2014 won’t be any different from 2012 and 2013 in terms of aggregate economic growth — even if the composition is healthier.
With the housing market overbuilt and household debt at record levels — 164 per cent of annual aftertax income — Madani expects a bad year for the construction industry and a slowdown in consumer spending, which makes up the majority of the economy.
“So you have a situation where weakness in housing and slower household consumption growth is now offsetting the improvement in exports and perhaps business investment,” Madani says.
Rather than improving, Madani thinks the economy will deteriorate further to 1.5 per cent growth, which may cause the Bank of Canada to cut interest rates further and even push Finance Minister Jim Flaherty off his austerity drive — although he admits that’s a long shot.
Madani’s advice. Wait till next year and, by next year, he means 2015 or even 2016. By then there will have been a correction in housing and global demand may be strong enough to make more of a difference to Canada.
The Canadian government has spent $13.2 billion more than it has taken in so far this year, a slightly larger deficit than the one for the same period in 2012.
The Department of Finance said Monday the federal deficit was $13.2 billion for the fiscal year up to October. That’s ahead of the $11.9 billion during the same period in 2012.
But that data is skewed by two major one-time events that impacted Ottawa’s finances: The Alberta floods of last summer, and the government’s sale of $700 million worth of GM shares in September.
Excluding the two events, the annual deficit would have been slightly smaller, at $11.1 billion.
For the fiscal year as a whole, Ottawa has taken in $144.9 billion and spent $158.2 billion so far. On a monthly basis, October’s deficit was $2.5 billion, the same as the one from the same month last year.
“The Government remains on track to balance the budget in 2015,” the department said in a release.
There must be clear policies about the sort of personal information flying drones are allowed to collect before Canadian police and others begin using them on a large scale, warns a new study.
The groundbreaking research report on drones — unmanned eyes in the sky — urges law enforcement agencies, governments and privacy commissioners to work together to ensure civil liberties are respected as more of the miniature craft take to the air.
It says unmanned aerial vehicles, or UAVs, can offer potentially significant cost savings for police and could be useful for responding to emergencies or performing mundane chores.
However, the “potential for intrusive and massive surveillance” means public discussion is needed to reassure Canadians they will not be arbitrarily spied upon, the study concludes.
Ultimately, the federal government “lacks a clear policy” on the devices, it adds.
Study finds many unanswered questions
A copy of the study, to be released next week, was made available to The Canadian Press by authors Christopher Parsons and Adam Molnar of Block G Privacy and Security Consulting.
They sifted through academic articles, court rulings and revealing Access to Information documents, uncovering many unanswered questions about the budding technology along the way.
The devices, which range in size from a bird to a small plane, are usually outfitted with cameras but can also carry thermal imaging devices, licence plate readers and laser radar. They can be potent military weapons and, in peacetime, are used for everything from filming movie scenes and detecting radiation to monitoring crowds and photographing accident scenes.
In Canada, UAVs are regulated by Transport Canada as aircraft under the Canadian Aviation Regulations.
The RCMP is eyeing creation of a national fleet of small helicopter-like drones with cameras to help investigate offences, reconstruct traffic accidents, and assist with search-and-rescue.
The Mounties have said they are not being used for general surveillance of people or vehicles.
‘Keen interest’ from Canadian police forces
The study notes keen interest from Canadian police forces, but says law enforcement agencies have not “sought feedback from the public on how UAVs should or should not be adopted as a tool to serve the public interest.”
The authors also cite safety and security concerns, including the potential for crashes or even the hacking of a drone to intercept the data it is collecting or make it steer off course.
Among the study’s recommendations:
— Police should engage in “wholesome consultations” with the public on the privacy implications of drones;
— Establishment of a provincial-federal working committee to develop drone policy for Canadian police;
— Creation of policies that spell out the sort of information drones can gather, how long it kept, the way it may be shared and how people can learn whether they have been spied upon.
“The time for such well-balanced policy making is now,” the study says.
Federal privacy watchdog ‘closely following’ expanded use
In her recent annual report, federal privacy commissioner JenniferStoddart notes that National Defence uses drones “in field operations outside Canada” while the National Research Council has planned limited trials with the aim of improving navigation.
A late 2012 poll conducted by Stoddart’s office found that four out of five people surveyed were comfortable with police use of drones for search-and-rescue missions.
But only two of five approved of their use in monitoring public events or protests.
“Considering the capacity of UAVs for surreptitious operation, the potential for the technology to be used for general surveillance purposes, and their increasing prevalence — including for civilian purposes — our office will be closely following their expanded use,” says the annual report.
“We will also continue to engage federal government institutions to ensure that any planned operation of UAVs is done in accordance with privacy requirements.”
If you knew there was a very safe Canadian investment that skyrocketed by 20 per cent last year, you’d probably say that was a good thing.
But when the thing that’s going up in value is farmland, Christie Young says it’s a crisis in the making.
The latest survey by Farm Credit Canada shows the price of farmland in Quebec rose by a staggering 19.4 per cent last year. Nationally, Canadian farmland from coast to coast has risen by an average of 12 per cent a year since 2008. That’s more than five times the rate of inflation.
For people who already own farmland, soaring prices are a windfall.
But Young, executive director of FarmStart, a group trying to help young farmers get into the business of farming, says Canada is facing a sea change that bodes ill for agriculture.
“The average age of farmers is 60 years old across Canada,” says Young.
“According to StatsCan data, about 50 per cent of our land assets will be transferred in the next five years. And of the retiring farmers, 75 per cent of them don’t have successors. It’s a transition we’ve never seen before in agriculture. And it’s one we are wholly and completely unprepared for.”
FarmStart has two incubator farms in southern Ontario to bring new farmers into the business, but at current prices, Young says there is no way those starting out could earn enough from their farms to make a living and pay their mortgage.
It is a problem that Rejean Girard, who farms southwest of Montreal, understands.
He bought his small plot of land near Saint-Cesaire 20 years ago. But Girard says the return he gets from the sheep he raises would never pay for that land today. By that measure, he says, the land is overpriced by about three-quarters.
The steadily rising price of land has caught the attention of savvy Canadian investors. Global investors have an interest, too, but in most provinces only Canadians are allowed to own farmland.
That has created an opportunity for Canadian farmland investment funds like Bonnefield, Agcapita and Assiniobia, which have been assembling blocks of farmland and selling shares to high net worth Canadians.
The president of Toronto-based Bonnefield, Tom Eisenhaur, says farmland has been one of the most lucrative and secure investments especially when markets are volatile, and “a better hedge against inflation than gold.”
Eisenhaur says he expects the price of land to continue to rise, if not at the same rate as over the past decade.
He quotes a United Nations survey that shows world food production will have to double over the next 20 years.
“While it’s trite to say, no matter how bad or how good things get in the markets, people still have to eat.”
Profits from rising prices
While Eisenhaur is profiting from rising prices, he scoffs at the idea that funds like his are responsible for the land boom.
He says that while farmers buy and sell some $15 billion worth of land each year in Canada, third-party investors like his company trade a mere $100 million worth.
So it seems clear that farmers’ pursuit of more acreage is helping to push up the price of the land.
That seems to be in direct conflict with what Girard, Young and many others say about the difficulty of paying for farmland with a farm income.
That is, until I speak with Gary Brien who farms near Chatham, Ont..
“The way we’ve looked at it is more of a way of life. It just so happens the land has gone up as we accumulated it over our lifetime,” says Brien. “I really don’t think we own it. We’re just using it while we’re here. The value to us may not be in a dollar value.”
Brien says that the last few years, bumper crops have pushed up farm incomes to record levels, so farmers have had cash to spare. And when farmers have money on hand, their non-monetary way of thinking of land, combined with the tax rules, encourages them to put that spare cash into farmland, whatever the price.
“Farmers don’t like paying income tax,” says Brien. “And if they get a bunch of money and have a choice to pay income tax, or buy more land, they buy more land.”
Bigger and bigger
That tends to mean existing farms are getting bigger and bigger, able to take advantage of the efficiencies of expensive modern farm machinery and make the money to buy more land.
But that doesn’t help the farmers who are just starting out small, without inherited family land and little prospect of paying off a mortgage, even if they could get one.
“We have farmers in rural areas paying far over the productive value of the land that they are buying because they have the income or there are such scarce land resources that they’ll pay anything,” says Young.
“For a new entrant looking at that landscape, it is almost impossible to conceive of buying a farm.”
- Alberta pensioner fights to reclaim home declared an embassy by ‘sovereign’ citizen (ctvnews.ca)
- Alberta woman’s house taken over by ‘Freemen’ renter who declared it an embassy (o.canada.com)
- Freemen growth in Canada concerns legal communities (talesfromthelou.wordpress.com)
- ‘Sovereign citizen’ movement worrying officials as 30,000 claim they ‘freed’ themselves from Canada’s laws (news.nationalpost.com)
- Tax-dodging ‘Freeman’ movement growing in B.C., officials warn (with video) (vancouversun.com)
- Charbonneau set to return with focus on Quebec unions (macleans.ca)
- Quebec corruption inquiry to focus on unions (cp24.com)
- Via Rail considers new security checks for passengers in response to alleged terror plot (thestar.com)
- Via Rail eyes stricter security measures after alleged terror plot (globalnews.ca)
- Via Rail eyes more baggage checks, sniffer dogs and background traces (blogs.windsorstar.com)