This weeks top stories include a look at the recession from a global standpoint, a look at a survey that show’s Canadians fell good about our recovery, how commercial property sales are down 65% in Toronto and how inflation has made food costs higher even though gas prices are down.
A global look at the recession
Today we will reflect on where the recession stands globally. Japan has emerged from the recession and has become the third G7 country to produce growth in the second quarter of 2009. Exports in Japan were up 6.3% in the second quarter and the economy has now returned to growth. The Gross Domestic Product (GDP) is up 0.9% which is a substantial improvement from the 3.1% contraction listed in the first quarter. There are doubts if the growth is sustainable as it was driven by stimulus steps taken by the country. The real measure, of the end of the recession, will be when Japan has self sustained growth outside of stimulus spending. France and Germany have also reported that they have emerged from the recession, each reporting a 0.3% rise in GDP in the second quarter after four quarters of consistent contraction of 0.3%. This is another economy where stimulus spending is being reflected as growth. The government’s cash for clunkers stimulus has enticed consumers to trade in their old vehicles for new ones and has helped in the recovery. When looking at the United Kingdom there is still no good news as the downturn just lingers on. Britain is still being held down by the current recession and the economy contracted again in the second quarter by 0.8%. The outlook for Britain is that the recovery will be slow and protracted. The second quarter was a little encouraging as there was improvement in the size of the contraction from the first quarter. The U.S is still trying to get a hold of itself with Federal Reserve Board officials sounding more hopeful as the Fed’s policy setting committee said that the recession seems to be leveling out. This was an upgrade from previous forecasts that stated that the pace of the economic contraction was slowing. The U.S economy still contracted by 0.3% in the second quarter which is a lot better than the 6.1% contraction that we witnessed in the first quarter of this year. Canada has great news as the Bank of Canada Governor, Mark Carney, stated on July 23 that the recession is over for Canada and growth is expected to make a comeback during the third quarter of this year.
Polls show Canadians fell good about our recovery
Canadian Press Harris-Decima, recently did a survey that suggests six out of ten Canadians feel the economy will bounce back twice as strong than that of our counterparts in the U.S. The poll results reiterated projections by Canada’s top bankers who stated that the economy will begin to see growth this summer after nine months of negative information. Bank of Canada (BOC) Governor Mark Carney recently stated that the summer quarter will see a growth of 1.3% which would be the first expansion in the economy since last fall. He also warned that our economic recovery is dependant on a massive government stimulus package and the BOC’s promise to keep the overnight lending rate at the historical low of 0.25% until the middle of 2010. Even with these projections, job losses cannot be controlled. Canada saw another 45 000 jobs shed in July while the unemployment rate stayed the same at 8.6% during the month. The state of the U.S economy is also hindering growth in Canada as weaker consumer spending and massive government deficits continue to hold down the U.S recovery. This weakens growth prospects for all of America’s trading partners, especially its largest trading partner, Canada. But good news is that Canadians are not put off by America’s position in the recession. There is a sense that there is still demand for our exports and more so than that of U.S exports. This stood true more-so in the western Canadian provinces, who were more optimistic about our recovery than those in Atlantic Canada and Quebec as was reflected in the poll.
Commercial property sales in Toronto down 65%
With the housing sector producing record sales in the month of July the major shock to real estate agents is that commercial sales are down a whopping 65% in the first half of this year. Real estate agents are saying that it is harder to move commercial properties this year and the numbers verify what they all are saying. There were only 287 commercial deals in the first half of this year down 389 units from the 676 properties sold in the first half of last year. This is just a sign that business confidence is not as high as consumer confidence in today’s recessionary market. Residential property sales are showing signs of stability with an increase in year over year sales and even price increases in the last two months but commercial properties like hotels and office buildings are shying in the opposite direction. Expectations are that the downward trend will continue well into this year and maybe even into the next. Majority of commercial properties are usually purchased by large pension funds and institutional investors who like to increase their portfolios through real estate and that just isn’t happening right now. The recent activity in the commercial market is coming from one off buyers who think that they can buy low and sell high down the road when the market levels off. The problem is that Canada’s commercial market isn’t distressed enough for people to feel that they can turn as tidy a profit as buying with our U.S counterparts. Most large firms will buy properties that are greatly undervalued and hold on to them until stabilization occurs and then sell them off but with Canada’s commercial market not quite taking the hit, values are still in or around where they stood before the recession.
Inflation reflected as food costs higher and gas costs lower
Prices across Canada fell 0.9% from last year July as the annual inflation rate is at the lowest levels seen in 56 years. July saw the second straight month where Canada’s inflation rate has dipped into negative territory. Prices dropped on an annual basis, as well as on a month to month basis, dropping 0.3% from June with 8 provinces recording a negative inflation rate. Economists feel that there should be little concern over deflation setting in as only three of the major components tracked by Statistics Canada are experiencing de-inflation and most is based on falling gas prices. In the month of July, consumers paid 28.3% less than they did the previous year at the pump and 4.1% less than the previous month. The difference in gas prices is astronomical as July 2009 saw gas prices reach 97.4 cent a litre whereas July 2008 had a record high of 136.6 cent a litre. The influence of gas prices on inflation is expected to see a reverse next month and could create a rise in inflation. If you take out the energy component, inflation and core inflation remains at 1.8% in Canada and is only slightly lower than the desired 2% target that the Bank of Canada would like it to be. Last month was considered to be the month of bargains as were seen in shopping prices across the country. Leading the lower prices was the cost of gas followed by the 4.3% drop in the costs of purchasing an automobile, mortgage interest costs were 0.1% lower, shelter prices fell 2% and even clothing and footwear costs were 2.1% less than last year July. The main contributor to inflationary pressure is food prices which were 5% higher in the month of July on an annual basis as well as the recent 5.1% rise in car insurance costs. When looking across the board, eight of Canada’s provinces experienced negative inflation in July with B.C leading the way with a minus 1.6% reading. Manitoba prices were flat while Saskatchewan was the only province to see positive inflation at 0.9%.
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