Kevin Carmichael
Ottawa — Globe and Mail Update
Last updated on Thursday, Jul. 23, 2009 09:05AM EDT
The U.S. and Canadian central banks are promising to keep borrowing rates at record lows well into next year as they seek to foster a recovery that both institutions say won't hit its stride until 2011.
Both the U.S. Federal Reserve Board and the Bank of Canada signalled yesterday the recessions in their countries are all but over, echoing their counterparts at the Bank of Japan and Reserve Bank of Australia, which published similar assessments.
But just as they agree the worst is over, Fed chairman Ben Bernanke and Bank of Canada Governor Mark Carney are united in their nervousness over the fragility of a rebound that is being fuelled almost entirely by benchmark interest rates that are near zero and hundreds of billions of dollars in short-term government spending.
North America's climb out of the deepest global recession since the Great Depression is being slowed by rising unemployment that is a threat to consumer confidence and an impediment to domestic spending.
The two central banks said those concerns are offsetting what would otherwise be stronger gains from better financial conditions and increasing signs that economic activity is expanding in other parts of the world.
“I want to be clear: We have a very long haul here,” Mr. Bernanke said during three hours of testimony to the U.S. House financial services committee. “It's not going to feel like a very strong economy.”
Mr. Bernanke, who returns to Capitol Hill today to complete his semi-annual report to the U.S. Congress by submitting to questions from senators, reaffirmed that he intends to leave the federal funds rate at “exceptionally low levels for an extended period of time.”
The benchmark U.S. lending rate is currently in a range of zero to 0.25 per cent, while Canada's key overnight target is 0.25 per cent, the lowest it can go without roiling short-term money markets.
Mr. Carney, through the Bank of Canada's latest policy statement, recommitted to keep the overnight target at 0.25 per cent until June, 2010, conditional on an unexpected burst of inflation.
Economic conditions in Canada have improved enough to warrant a brighter outlook from the central bank.
Policy makers used yesterday's statement to adjust their forecast for 2009 to a contraction of 2.3 per cent, compared with an April prediction that gross domestic product would collapse 3 per cent. GDP will expand 3 per cent next year, compared with a previous estimate for growth of 2.5 per cent, the Bank of Canada said.
The revisions reflect what the central bank said are “increasing signs that economic activity has begun to expand in many countries” as a result of unprecedented monetary and fiscal stimulus.
“The recovery is nascent,” the Bank of Canada said.
“Effective and resolute policy implementation remains critical to sustained global growth.”
At home, domestic demand also is getting a boost from improved financial conditions, firmer commodity prices and a rebound in business and consumer confidence, the Bank of Canada said. Growth is being significantly offset by a higher dollar that is crimping exports and restructuring in the auto and forestry industries.
The central bank's revised outlook, which it will explain when it releases its latest quarterly economic report tomorrow, puts it in line with the 2009 forecasts of Canada's biggest banks and leaves it more optimistic about 2010.
Inflation remains tame and is unlikely to pose a threat for some time. Canadian policy makers don't expect the economy to return to a level at which it risks sparking rapid inflation until mid-2011.
Thursday, July 23, 2009
Tuesday, July 21, 2009
Canadian Central bank sees brighter economic picture
Julian Beltrame
THE CANADIAN PRESS
OTTAWA – The Bank of Canada all but sounded the all-clear Tuesday on the credit crisis that has crippled the economy the past year, saying Canada is poised for a stronger rebound than previously expected.
In a surprising move, the central bank said it is reducing the amount of money it is making available to chartered banks in order to support borrowing and lending because the need for such extraordinary measures is waning.
"Conditions in funding markets have continued to improve," the central bank said in an accompanying statement to its scheduled interest rate announcement.
"Indicative measures of bank funding costs ... have declined steadily from the September 2008 peak to stabilize at their lowest levels since the onset of the financial crisis."
Governor Mark Carney did as expected Tuesday in keeping the bank's key policy rate at the lowest possible level of 0.25 per cent.
And he reiterated the conditional commitment he made in April to keep it at the so-called "lower bound" until the second quarter of 2010.
But there is little doubt from the statement he released in explanation of the decision, and a second release on credit conditions, that Carney believes much has changed in the world and in Canada during the past three months.
The governor said the Canadian economy will now contract by 2.3 per cent this year, not the three per cent he had forecast in April, the last time the central bank released an outlook.
And he said the economy will advance by three per cent next year, a half-point better than his thinking in April.
"Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand," he said in the statement.
"Some of the early strength in domestic demand represents a bringing forward of household expenditures, which modestly alters the profile of growth over the projection period."
In bank speak, that means that growth will happen sooner and stronger, all but signalling that the recession that cost Canadians almost 400,000 jobs since October is close to, or already, over.
But Carney has not changed his mind on the strength of the overall recovery.
He maintains that it will take until the middle of 2011 for the economy to again reach full capacity. As a result, growth in 2011 will be lower than previously thought for that year because it happened earlier.
Part of the reason the recovery will be a long and drawn-out process is the strong Canadian dollar that will keep exports low, and the ongoing restructuring in key industrial sectors, the bank said.
As for the global economy, the bank said "there are now increasing signs that economic activity has begun to expand in many countries in response to monetary and fiscal policy stimulus."
However, the recovery is in its early stages, the central bank cautioned.
The decision to reduce the level of money the bank is injecting into the system had been suggested by some economists, noting that in some cases banks were not drawing down as much as the Bank of Canada was making available.
Some instruments were not being used at all.
As well as making less liquidity available, the bank also has increased the maturity dates for the term purchase and resale agreements.
The central bank noted, however, that it remains committed to providing liquidity "as required," to support the stability of the financial system.
THE CANADIAN PRESS
OTTAWA – The Bank of Canada all but sounded the all-clear Tuesday on the credit crisis that has crippled the economy the past year, saying Canada is poised for a stronger rebound than previously expected.
In a surprising move, the central bank said it is reducing the amount of money it is making available to chartered banks in order to support borrowing and lending because the need for such extraordinary measures is waning.
"Conditions in funding markets have continued to improve," the central bank said in an accompanying statement to its scheduled interest rate announcement.
"Indicative measures of bank funding costs ... have declined steadily from the September 2008 peak to stabilize at their lowest levels since the onset of the financial crisis."
Governor Mark Carney did as expected Tuesday in keeping the bank's key policy rate at the lowest possible level of 0.25 per cent.
And he reiterated the conditional commitment he made in April to keep it at the so-called "lower bound" until the second quarter of 2010.
But there is little doubt from the statement he released in explanation of the decision, and a second release on credit conditions, that Carney believes much has changed in the world and in Canada during the past three months.
The governor said the Canadian economy will now contract by 2.3 per cent this year, not the three per cent he had forecast in April, the last time the central bank released an outlook.
And he said the economy will advance by three per cent next year, a half-point better than his thinking in April.
"Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand," he said in the statement.
"Some of the early strength in domestic demand represents a bringing forward of household expenditures, which modestly alters the profile of growth over the projection period."
In bank speak, that means that growth will happen sooner and stronger, all but signalling that the recession that cost Canadians almost 400,000 jobs since October is close to, or already, over.
But Carney has not changed his mind on the strength of the overall recovery.
He maintains that it will take until the middle of 2011 for the economy to again reach full capacity. As a result, growth in 2011 will be lower than previously thought for that year because it happened earlier.
Part of the reason the recovery will be a long and drawn-out process is the strong Canadian dollar that will keep exports low, and the ongoing restructuring in key industrial sectors, the bank said.
As for the global economy, the bank said "there are now increasing signs that economic activity has begun to expand in many countries in response to monetary and fiscal policy stimulus."
However, the recovery is in its early stages, the central bank cautioned.
The decision to reduce the level of money the bank is injecting into the system had been suggested by some economists, noting that in some cases banks were not drawing down as much as the Bank of Canada was making available.
Some instruments were not being used at all.
As well as making less liquidity available, the bank also has increased the maturity dates for the term purchase and resale agreements.
The central bank noted, however, that it remains committed to providing liquidity "as required," to support the stability of the financial system.
Thursday, July 2, 2009
Battle over development fees heats up in Oakville
Phinjo Gombu
Urban affairs reporter Toronto Star
Peter Gilgan, one of Canada's most prolific homebuilders, is crying foul over municipal plans to stiffly increase development charges he must pay to build in north Oakville, an area poised for explosive growth.
In some places, he might have garnered a sympathetic response, especially after writing to prospective homeowners encouraging them to complain to the people they elected. But this is one showdown he's unlikely to win.
Politicians in Oakville and Halton Region are digging in their heels, saying it's time the development industry paid its fair share of the cost of services such as roads, water pipes, new libraries and recreation centres.
"It's our feeling that (developers) made a lot of money during the good times, and they should be using some of that money to pay for the services and stop using the argument that the economy is bad," says Halton regional chair Gary Carr.
"The cost is the cost," Carr says. "If they decide not to proceed, then it is their decision not to go forward, not ours."
Carr and Oakville Mayor Rob Burton were among a group of politicians who made the idea that growth should pay for itself a major plank in their platforms in the 2006 municipal elections. They believe existing residents shouldn't have to pay for infrastructure needed because of pressures brought on by new residents.
Halton Region already has some of the highest development fees in the GTA. A proposal to be debated in July would add a further $7,888 in infrastructure costs on to the current charge of $29,074 per home. The final amount paid per house would be about $63,813, when combined with a proposed 65 per cent increase in Oakville's development charges – which will be voted on a few days before the regional vote – as well as additional charges to cover education and transit.
Gilgan, president and CEO of Mattamy Homes Ltd., says that is "indefensible" and "intolerable." The cost, he says, will inevitably be passed on to new homebuyers, affect the affordability of new homes, slow down their construction and further hurt an already battered economy.
The proposed charges are based on "glaring errors" that assume construction costs will continue to go up, not down, he insists.
Regional staff and politicians dismiss those claims, saying that only the actual tendered costs are ever charged.
"The lack of accountability and transparency is appalling," says Gilgan, who wrote a letter to potential buyers urging them to complain about how the increase will hike the cost of a new home.
But in Halton, where green-leaning politicians considered freezing growth altogether last year in an effort to push the province and the industry toward coughing up more infrastructure funding, such complaints fall on deaf ears.
Emboldened by major victories against developers at the Ontario Municipal Board over the amount of green space that must be preserved in north Oakville when the homebuilders move in, they say they will not give in to complaints like Gilgan's.
The Halton debate has huge implications because south Milton and north Oakville, still nearly entirely rural, are poised for major growth, with more than 75,000 residents expected to move in by 2021.
Oakville councillors Allan Elgar and Tom Adams say they won't apologize for high development charges because that's simply the cost of doing business in the town.
"We don't want to subsidize the development industry any more than we have to," says Elgar.
Such blunt talk reflects pent-up anger over decisions made more than a decade ago.
In 1997, the Mike Harris Conservatives changed the law, reducing to 90 per cent the share developers were required to pay toward services such as parks, recreation centres and libraries in new communities.
Developers were also exempted from contributing to the community portion of new hospitals, which property taxes help cover today. (They are still expected to pay 100 per cent of the cost of new roads, water and waste-water pipes and plants.)
Municipal officials contend that since that change was made, property-tax payers have increasingly been saddled with costs that should rightly be borne by developers and new homebuyers.
What's rankling the industry today is Halton politicians' willingness to use every available tool in their belt, including a clause in the region's Official Plan that allows water and sewer connections to new homes to be withheld until an acceptable financing plan for new infrastructure is in place.
Other GTA regions – York Region, notably – have built infrastructure at the front end, hoping to recover costs from developers later. Halton requires them to pay up front.
All of this has led the Building, Industry and Land Development Association, the industry lobbying group, to complain that such charges "will have far-reaching effects across the Greater Toronto Area."
Urban affairs reporter Toronto Star
Peter Gilgan, one of Canada's most prolific homebuilders, is crying foul over municipal plans to stiffly increase development charges he must pay to build in north Oakville, an area poised for explosive growth.
In some places, he might have garnered a sympathetic response, especially after writing to prospective homeowners encouraging them to complain to the people they elected. But this is one showdown he's unlikely to win.
Politicians in Oakville and Halton Region are digging in their heels, saying it's time the development industry paid its fair share of the cost of services such as roads, water pipes, new libraries and recreation centres.
"It's our feeling that (developers) made a lot of money during the good times, and they should be using some of that money to pay for the services and stop using the argument that the economy is bad," says Halton regional chair Gary Carr.
"The cost is the cost," Carr says. "If they decide not to proceed, then it is their decision not to go forward, not ours."
Carr and Oakville Mayor Rob Burton were among a group of politicians who made the idea that growth should pay for itself a major plank in their platforms in the 2006 municipal elections. They believe existing residents shouldn't have to pay for infrastructure needed because of pressures brought on by new residents.
Halton Region already has some of the highest development fees in the GTA. A proposal to be debated in July would add a further $7,888 in infrastructure costs on to the current charge of $29,074 per home. The final amount paid per house would be about $63,813, when combined with a proposed 65 per cent increase in Oakville's development charges – which will be voted on a few days before the regional vote – as well as additional charges to cover education and transit.
Gilgan, president and CEO of Mattamy Homes Ltd., says that is "indefensible" and "intolerable." The cost, he says, will inevitably be passed on to new homebuyers, affect the affordability of new homes, slow down their construction and further hurt an already battered economy.
The proposed charges are based on "glaring errors" that assume construction costs will continue to go up, not down, he insists.
Regional staff and politicians dismiss those claims, saying that only the actual tendered costs are ever charged.
"The lack of accountability and transparency is appalling," says Gilgan, who wrote a letter to potential buyers urging them to complain about how the increase will hike the cost of a new home.
But in Halton, where green-leaning politicians considered freezing growth altogether last year in an effort to push the province and the industry toward coughing up more infrastructure funding, such complaints fall on deaf ears.
Emboldened by major victories against developers at the Ontario Municipal Board over the amount of green space that must be preserved in north Oakville when the homebuilders move in, they say they will not give in to complaints like Gilgan's.
The Halton debate has huge implications because south Milton and north Oakville, still nearly entirely rural, are poised for major growth, with more than 75,000 residents expected to move in by 2021.
Oakville councillors Allan Elgar and Tom Adams say they won't apologize for high development charges because that's simply the cost of doing business in the town.
"We don't want to subsidize the development industry any more than we have to," says Elgar.
Such blunt talk reflects pent-up anger over decisions made more than a decade ago.
In 1997, the Mike Harris Conservatives changed the law, reducing to 90 per cent the share developers were required to pay toward services such as parks, recreation centres and libraries in new communities.
Developers were also exempted from contributing to the community portion of new hospitals, which property taxes help cover today. (They are still expected to pay 100 per cent of the cost of new roads, water and waste-water pipes and plants.)
Municipal officials contend that since that change was made, property-tax payers have increasingly been saddled with costs that should rightly be borne by developers and new homebuyers.
What's rankling the industry today is Halton politicians' willingness to use every available tool in their belt, including a clause in the region's Official Plan that allows water and sewer connections to new homes to be withheld until an acceptable financing plan for new infrastructure is in place.
Other GTA regions – York Region, notably – have built infrastructure at the front end, hoping to recover costs from developers later. Halton requires them to pay up front.
All of this has led the Building, Industry and Land Development Association, the industry lobbying group, to complain that such charges "will have far-reaching effects across the Greater Toronto Area."
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