It’s not likely Stephen Poloz will stray from his deep-dis­count in­ter­est-rate pol­icy any­time soon,

Toronto Star - - SMART MONEY - David Olive

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@thes­


Bank of Canada Gov­er­nor Stephen Poloz won’t want to risk chok­ing off Canada’s eco­nomic re­cov­ery with a rate hike, David Olive says.

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