This week’s top stories include how the former Governor feels that the Central Bank should have more power, how new condo sales have surged this spring, how Jim Flaherty threatens to make a move on the advancing loonie, how the exit of Baby Boomers from the job market will cause chaos and how Canada’s Finance Minister Jim Flaherty has planned a mission to China to aid trade.
Former Governor feels Central Bank should have more power
Even though the Canadian banking system held it’s own during the economic crisis, the financial regulatory scheme is inadequate and in need of change. Former Bank of Canada (BoC) governor, John Crow, states “The bank should be given a clearly acknowledged oversight and investigative mandate regarding financial stability, linked with the responsibility to report on the same.” He feels that the BoC should have the clear authority and responsibility to decide what needs to be tackled and to form and publish its own considered views on broad matters. The collapse of Canada’s non bank commercial paper market and how the Superintendent of Financial Institutions argued no responsibility for the fall should be key indicators for the need for change. Even today, it is unclear whether Canada’s solid financial system could be attributed to superior regulatory work, conservative lending practices or just plain luck. The current BoC governor, Mark Carney, criticized the current global banking regulatory setup as too rigid and not flexible enough to deal with sudden changes in financial markets. He stated that the changes will make the system more dynamic and in a better position to identify systemic risks. Carney has promised to lobby world financial leaders and Canada’s domestic partners for reforms. Canada is a member of The Group of 20 nations which has already endorsed Carneys move to system wide oversight. Crow feels that the central bank should be given access to data compiled by supervisory agencies and use its expertise to get authorities to tackle what may be large risks to the stability in the marketplace. The general consensus is that the BoC should work with other regulatory agencies and lead a committee of key players such as the Office of the Superintendent of Financial Institutions as well as the Department of Finance. What do you think on the matter? Comment below.
New condo sales surge in spring
Toronto’s new condo market rebounded in the second quarter of 2009 as developers offered incentives to move units and consumer confidence improved. Analysts believe that the market isn’t on firm ground yet with thousands of units still under construction and a huge backlog of unsold units. Condo sales hit 2963 units in the second quarter after three consecutive quarters of negative growth. Sales are up 223% from the 917 sales seen during the first quarter of this year. With sales exceeding expectations of most, the figures for July are expected to be positive. The resale condo market is expected to also be up 30% in the month of July from the same time last year. First time home buyers mixed with low interest rates are helping to drive the numbers. Developers acted quickly to the changing economic outlook by changing floor plans to smaller units and giving fewer amenities for a lower price point on their units. While second quarter sales are still down 40% from the same quarter in 2008 analysts warn of more pain to come in the condo market. This is based on recent figures which show that there are currently 35 618 condo units under construction in Toronto, which are expected to create an excessive supply, when they are completed within this year and the next. The condos will amount to a three year supply once completed. There were more resale condo’s sold in the second quarter than new condo’s with figures showing 4893 sales as resale condo’s are better priced than new ones. The average price for a new condo is $474 00 while condo’s in the resale market had an average price of $326 000. Fewer developers are starting projects now with some projects stalled indefinitely. An example of this is the highly anticipated 1 Bloor Street East building, expected to be the tallest residential tower in the city, which is for sale after the developers defaulted on loans. This just shows that the global meltdown has caused banks to be careful when lending money on large scale projects. Analysts hope that fewer new projects and low interest rates will stabilize the condo market in the future. We will have to wait and see.
Flaherty threatens to make a move on the loonie
Canadian Finance Minister Jim Flaherty attempted to stop the surge of the Canadian dollar this week by threatening intervention. Analysts feel that this move is unlikely given the fact that the authority is actually held by the Bank of Canada (BoC) which has not intervened on the loonie since September of 1998. Flaherty said that the government is concerned with any rapid changes in the valuation of the Canadian currency against the U.S dollar. The comments were seen as a strategy of verbal influence, more than anything else, and weighted slightly on the dollar when made but unable to stop it from rising. The loonie has risen 21% since the market turned five months ago. Flaherty did not detail what steps would be taken to soften the loonie but is not in a position to intervene himself. This would be left up to BoC governor Mark Carney who has the authority to intervene. Currency intervention would involve the BoC selling Canadian dollars and purchasing Greenback to lower the value of the domestic currency. This strategy is believed to be largely ineffectual in the large international markets. Carney stated earlier in the year that a higher Canadian dollar would weigh on economic growth, but has not signaled that intervention will be coming any time soon. The loonie is at pace to near 95 cents U.S in the next two weeks. This is mainly due to a lack of appetite for the U.S dollar and will continue to put an upwards pressure on the loonie. Some analysts predict that the loonie will near parity with the U.S dollar and even break above it if oil rises above $100 U.S a barrel. Where do you think the loonie will come to a halt? Please comment below.
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Baby Boomers exit from job market to cause chaos
The economic melt down has created havoc on the Canadian job market with 370 000 employees being shed from payrolls since October of last year. Workers that were lucky enough to hold on to their jobs have seen benefits and pay reduced. With the economy turning in a better direction now, the job market and compensation packages will recover. This is due, not only, to a better economy, but also because of an ageing in the population. Let’s view some numbers to see the direction I am going in. Roughly 30% of recent job losses are from the construction sector but the country’s Construction Sector Council states that it will need 317 000 skilled workers between now and 2017. Out of that number, 168 000 workers will be needed to replace retiring Baby Boomers. The mining sector will need 70 000 new workers over the next decade to meet its projected growth needs. It’s expected that 40% of the mining industries workforce will retire by 2014 leaving the industry in turmoil. The recession and its impact on the equity markets may force workers 55 and over to work a little longer in the hopes of building up their portfolios. If the recovery from this economic crisis is a normal one, we should see massive shortages in the next three to four years based on the demographic situation at the time and will intensify over the next 15 to 20 years. Despite the warnings, Canadian employers have not done much to prepare. The coming decades will see a global competition for labour of all kinds. Old age benefits and the health care fund will come under greater strain with the ageing population. This will create a demographic threat to public finances and eventually manifest itself into a higher tax burden for the country. Policy makers that are aware of the up and coming population crunch have helped the federal government in making recent changes to the Canada Pension Plan that encourages older workers to keep working until the age of 70 by paying richer benefits to those who wait. Companies in the future will likely focus more time on developing strategies that keep existing workers with their organizations for longer periods. Some companies are starting now by not cutting too many jobs during the economic downturn due to the fact that if the economy picks up again, they won’t have workers and may not be able to get the other ones back. What is your company doing to prepare for this inevitable event? Please comment below.
Flaherty’s mission to China
Jim Flaherty, Canada’s Finance Minister, is leading a delegation to China. This signals a new chapter in the government’s relationship with the world’s fastest growing major economy. Flaherty intends to take Bank of Canada Governor Mark Carney, the head of the federal banking regulator Julie Dickson, Manulife Financial Corp. CEO Donald Guloien, Sun Life Financial CEO Donald Stewart and several other senior executives from Canada’s largest banks, with him on his journey. Flaherty will try to leverage the success of the country’s financial institutions during the economic crisis to his advantage. Chinese authorities have turned to Canada for help in developing banking and insurance systems based on free market principals. The trip represents a new start to diplomacy for a government that has been consistently accused of alienating China by placing too much emphasis on China’s human rights abuses. China is considered to be one of Canada’s most important trading partners. China has managed to escape many of the negative effects of the crisis, just like Canada, and the two countries are trying to figure out how they can move into the future together. Prime Minister Stephen Harper has not visited China since he took office over three years ago. He even skipped the Olympics last year in Beijing leaving people wondering when he will make a diplomatic attempt towards trade. China is expected to lead the world out of the recession and Canada finally realizes that as it seeks to balance its political and economic interests. Premier Harper now has a trip planned to the country in mid-November and is sending Flaherty ahead of time to pave the way for his appearance. This group will represent the most significant contingent of Canadian officials and executives to descend on China since early 2005 when former Trade Minister Jim Peterson led a seven day trade mission with an appearance by Paul Martin, who was the Prime Minister at that time. Flaherty visited China by himself in January of 2007 in a personal effort to engage with the worlds rising economic powers. Canada’s financial institutions are depending heavily on Flaherty and other Canadian leaders to assist them with gaining entry into an economy that is mainly controlled by the government. Canada’s financial firms and big banks have been trying to break into China’s lucrative market but progress has remained elusive for non-Chinese companies for quite some time now.
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