STATUS QUO
It’s not likely Stephen Poloz will stray from his deep-discount interest-rate policy anytime soon,
Our frozen key lending rate Don’t expect Stephen Poloz, governor of the Bank of Canada, to ease away from his deep-discount interest-rate policy anytime soon.
Never mind that Poloz’s U.S. counterpart, Janet Yellen, last week raised the Federal Reserve Board’s benchmark lending rate for the third time in six months. Canada’s spectacular first-quarter GDP growth of 3.7 per cent, on an annualized basis, was actually a tad lower than the 3.9 per cent expected by forecasters. Few of them expect that level of growth in the balance of the year.
And the first-quarter performance was largely driven by the will-itever-end housing boom. New residential construction posted a sizable 3.9-per-cent gain in the quarter, and renovation activity was up 2.1 per cent. A housing boom obviously is a precarious scenario on which to build a forecast for sustainable lofty GDP growth.
That’s especially true when the Bank of Canada and the International Monetary Fund are each warning of a Canadian housing bubble set to burst as it explores the outer realms of irrational exuberance.
A rate hike also threatens havoc in Canadian personal finances, with Canadians owing a near-record $1.67 for every $1 of household disposable income.
Poloz won’t want to risk choking off Canada’s largely debt-driven economic recovery with a rate hike. Oil’s chronic doldrums Here are two harbingers of global oil-price strength.
OPEC’s stabilization of the world oil price with its extension of production cuts last month could turn out to be a false spring for a gradually recovering Alberta economy.
Vigorous oil production by U.S. frackers threatens to once again have the Yanks eating into OPEC’s market share.
So brace for a possible second market-share war launched by OPEC, as it once again floods the market and depresses prices.
Also keep an eye on TransCanada Corp.’s ability to win contracts for its proposed Keystone XL pipeline, on the go again after its approval by the Trump administration.
Only the promise of sustainably improved oil prices will make the unbuilt pipeline attractive to U.S. producers. If producers start signing up for Keystone XL, that would be an encouraging sign of anticipated long-term price improvement.
But so far, U.S. producers are staying away from Keystone XL, despite near-record production volumes. They not only expect continued weakness in the oil price, but now have an alternative delivery system. The Trump-approved Dakota Access pipeline, set to be fully operational this month, is intended to transport half of the oil output of North Dakota, an epicentre of the fracking boom. Nevermind the Brexit. Here come the Bulgarians Bulgaria is in good shape to win the membership it covets in the Eurozone.
Bulgaria, a member of the larger European Union for a decade, has long pegged its currency, the lev, to the euro.
Its national debt is lower than that of all but two of the 19 Eurozone members. Sofia has managed the national finances so well that Bulgaria is running only a modest deficit after enduring six years of European economic crisis.
And the country of 7.1 million people also has an impressive $26.7 billion (U.S.) socked away in foreign reserves.
The only stumbling block is Bulgaria’s weak per capita GDP, which is less than half the Eurozone average. With the EU bailout of lowincome Greece in mind, some Eurocrats worry about the potential of a Bulgarian bailout someday.
But wealthy Ireland needed a bailout, too. And the Greek crisis arose from decades of ruinous fiscal mismanagement, a remote prospect with Bulgaria given its sound public finances.
This Eastern European country has none of the fears about losing its national character or control of local affairs that motivates the Brexiteers.
That fact alone would seem to merit a warm embrace of a Bulgaria not afraid of its own shadow. Cheesed Charles de Gaulle warned us about the political minefield of cheese. “How can anyone govern a nation that has 246 different kinds of cheese?” he said.
Sure enough, the July 1 start date for the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union may have to be pushed back because of a dispute over Camembert.
Well, not Camembert specifically: It’s still unclear under CETA which cheeses can be sold where and by whom.
The snag appears to be a Canadian quota on imports of EU cheese that grants Canadian dairy producers and processors 60 per cent of the sales of EU cheese imported tarifffree.
EU complainants would prefer that Canadian retailers get the lion’s share of the quota.
With no cheese production of their own to favour, retailers are thought more likely to use their entire quota. But Canadian producers might leave their quotas largely unused to protect their own products.
The dispute might actually turn on diplomacy. Canada is said to have presented its quota to EU counterparts as a fait accompli, not to be negotiated.
Expect a Canadian pullback on that, to cement a huge trade deal more than seven years in the making. dolive@thestar.ca