Posthaste: Who knew? Canada’s public finances are in better shape than most countries
If you need evidence that the trade war it hitting global growth, look no further than China this morning. World stocks slid and U.S. futures are flat after China posted its weakest GDP growth in almost 30 years. “You can’t get away from the fact that China is slowing, but it’s not slowing more than we thought,” Michael Metcalfe, head of global macro strategy at State Street Global Markets, told Reuters. “We know that Q4 is going to be a soft patch, but to a degree policymakers are ahead of this, so as long as we don’t have an escalation of the trade war now I think markets can handle it.” That’s a big if.
In the U.S., GM workers will stay on the picket lines while they vote on a tentative agreement reached this week. The month-long strike of about 49,000 U.S. workers has taken a toll on the economy, but even without it American factories are hurting, says BMO senior economist Sal Guatieri. A weaker global economy and trade protectionism are slowing manufacturing, September data shows. Add to that soft retail sales and mixed housing starts/building permits and BMO sees Q3 GDP coming in at 1.9% annualized, slipping to 1.6% in Q4. “Given the increased malaise in manufacturing and incipient softness in the broader economy, the Fed remains solidly on track to reduce rates again on Oct. 30,” wrote Guatieri in a note.
Canada’s debt burden has been an election issue, but according to Capital Economics, our public finances are in better shape than most countries. Capital’s senior Canada economist Stephen Brown writes in a report this week that Canada with a federal debt-GDP ratio of 31% is better off than the U.S. where it’s 77%. If you add in the debt of provinces and municipal governments that ratio climbs to 90% of GDP, but it still beats the total U.S. public debt of 104%. The U.S., however, has the advantage of the world’s reserve currency and Canada’s debt to GDP ratio is similar to countries which are “perceived to have fragile public finances” like Spain and France. But Capital says there are two reasons not to be worried about this. First Canada has sustainable public pension plans, holding more assets than most countries under the Canada Pension Plan and Quebec Pension Plan. Capital says once you include those assets overall net public debt is just 27% of GDP, substantially lower than most advanced economies. Second, the most indebted provinces, Quebec and Ontario, are getting their budgets under control. Quebec is running a budget surplus and Ontario has a plan to bring its deficit down. Even if recession hits, Capital thinks “the government would have ample fiscal space with which to support the economy.”
Here’s what you need to know this morning:
Bank of Canada Deputy Governor Timothy Lane participates in “Future of Money” panel at Institute of International Finance in Washington, D.C.
B.C. Solicitor General Mike Farnworth holds a press conference in Vancouver on the legalization of cannabis edibles, topicals and extracts
Notable earnings: Corus Entertainment, Coca-Cola, Schlumberger, American Express
Today’s data: Teranet/National Bank Canadian home price index
Alberta natural gas is back in the game, with a 400% spike in prices in just one month. Falling inventories and improved market access are behind the rally that is piquing the interest of investors who have shunned the fuel for the past two years, writes the Financial Post’s Geoffrey Morgan. The rally has also buoyed the spirits of embattled producers who were forced to cut drilling and production because of prices that had fallen to as low as 4 cents in late May. Between Sept. 17 and Thursday, the Alberta benchmark skyrocketed 422% from 45 cents per thousand cubic feet to $2.35 per mcf, according to Bloomberg data. Nonetheless, gas producers are not getting carried away by the rally. “I don’t perceive anybody will be going out to drill their brains out,” said Advantage Oil and Gas president and CEO Andy Mah.