This weeks top stories include how Canada is trying to stir up ties with China, how housing starts dropped slightly, how Mayor Miller says no new taxes but there may be some hikes and how we must look at the recovery first before we can look at an exit strategy.
Canada stirring up ties with China
Jim Flaherty, Canada’s Finance Minister, wants Chinese run state entities to consider North American listings as a way to facilitate investments into our energy rich country. Flaherty will assure Chinese authorities that their investments are welcome on a commercial basis. “Our point of view with respect to investments is they should be done for business purposes not for political purposes,” Flaherty stated during a flight to China this week. Canada is the second largest exporter to the U.S after China. Canada’s goal is to strengthen trade ties with the Asian country in an effort to reduce its dependence on the failing U.S economy. During his trip Flaherty will meet with Lou Jiwei, chairman of CIC, China’s $200 billion sovereign wealth fund to talk about energy investments in Canada. Canada is one of the worlds 10 largest producers of natural gas and oil, and is a major exporter of fertilizer, wheat and nickel, making it increasingly important for ties to resource hungry China. Canada sits on the largest pool of oil reserves outside of the Middle East making it increasingly attractive to China who currently has a small presence in Canada’s energy sector. Flaherty stated that his trip to China is part of a larger effort to strengthen ties with India, Russia, China and Brazil known as the BRIC bloc of countries. Flaherty made a statement earlier in the week saying, “The exit from the recession globally is going to be led by the BRIC countries.” Canada’s exporters have been turning to China to help gain traction in a slippery economy by increasing exports to the country. The increase in exports to China was up 6.8% from May of this year while exports to the U.S were down 26% during the same time period. In order for the Can-China relationship to prosper, the ties between the two countries will need to improve and Canada will need to provide clearer guidelines on how it will handle investments from the state run entities. Flaherty told Bloomberg news earlier in the week that Canada’s investment rules apply to all countries and that we will not single out any particular jurisdiction. Flaherty was accompanied by Robert Fotheringham, senior vice president of trading with TSX Markets, on his trip and said that it was an intentional move to promote Canada’s capital markets as the country looks for more Chinese investments. Also with Flaherty were officials from Bank of Nova Scotia, Bank of Montreal, Royal Bank, CIBC, TD Canada Trust, Manulife Financial and Sun Life Financial Inc. as part of the efforts to help Canada’s financial industry expand into China.
Housing starts fall but not much
Housing starts for the month of July in Canada fell to an annualized rate of 132 100 from 137 800 in the month of June. Statistics released earlier this week by Canada Mortgage and Housing Corporation (CMHC) threw off analysts who had expected a seasonally adjusted rate of 145 000 new home starts this year. The minor decline is attributable to the volatile multiple starts segment that includes condos and apartment buildings. The negative data is considered to be non reflective of where the year is heading because economists and analysts alike are stating that housing starts are expected to improve throughout the remainder of the year. Urban housing starts dropped 5.5% to 113 500 units in the month of July and urban multiple starts were down 9% to 61 000 units. Another decline was seen on urban single starts where the numbers were down 1.1% to 52 500 unit in the month of July. Surprisingly, starts in Quebec rose 16.6% in the month of July but numbers were down across the board everywhere else across the region. Urban starts declined in the Prairies by 17%, 15% in Ontario, 10% in B.C and 1.4% in Atlantic Canada. CMHC forecasts that housing starts will become more closely aligned to demographic demand, over the next several years, which is estimated at roughly 175 000 units per year.
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Toronto Mayor says no new taxes but he didn’t say no hikes
David Miller, Toronto’s current Mayor, stated that he would not introduce any new taxes this year but did hint that property tax increases and user fee hikes are inevitable and likely. The comment was made due to next year’s pre-election budget that is expected to have a shortfall of as much as $300 million. The city finances have already taken a large hit due to the recession and the mayor can only promise that there will be no new taxes implemented on parking lots and theatres. In 2006 the city received new taxation powers under the province of Ontario’s “City of Toronto Act” and in 2007 implemented a land transfer tax and vehicle registration tax. Earlier in the week the Mayor noted that Toronto’s property tax levels are the most favourable in the region but did not rule out raising them. Earlier this year Toronto raised residential rates by 4% and used new market value assessment notices to lower the business tax ratio well ahead of schedule. Councillor Karen Stintz predicts that one new tax will take effect this year, a billboard tax, but won’t effect the housing community. She also expects to see a host of hikes on existing fees such as a water rate increase of 9%, a garbage fee increase of at least 3% and predicts a property tax increase of 3% to 5%. If the mayor does decide to introduce any new taxes it will be political suicide as the Mayor has always promised to not increase taxes more than the rate of inflation and has failed miserably in keeping his promise. What do you think? Please comment below.
Recovery first, exit strategies later
Jim Flaherty, Canada’s finance minister, announced on Wednesday that the world’s global policy makers have come to a consensus. We must secure a solid economic recovery before we can turn our attention to exit strategies from stimulus policies or discuss exchange rate issues. While on his current trip to China, he stated that Chinese leaders agreed with him that discussions of international currency issues should wait until the global economy is firmly back on its feet. Flaherty shocked financial markets last week when he stated that he may intervene on the Canadian dollar as its sharp rise was putting the Canadian economic recovery at risk. He stated that the currency is primarily the responsibility of the Governor of the Bank of Canada, Mark Carney, but did express concerns with respect to rapid inflation. The loonie has moved lower this week as a drop in commodity prices and a weak domestic housing report have impeded on investor interest and underscored Flaherty’s cautious economic outlook. “What positive signs we have seen are encouraging, but they are tentative,” he stated in an interview earlier in the week. He went on further to state that Canada is in no rush to scale back government spending that it is currently using to help pull itself out of the recession. “We know that in the future it will be necessary to have exit strategies so that the degree of involvement of public funds in stimulus programs and so on can become more balanced. But that depends on how the economies do in the next while,” he said. The concerns of how to wind down stimulus programs will be addressed next month at the meeting of finance ministers from the G20 Group in London. Flaherty concluded by reiterating his welcome of Chinese direct investments in Canada as long as foreign investors have commercial goals and transparent governance.
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