Posted: Thu Jul 13, 2017 1:53 pm Post subject: IMF Rings the Alarm on Canada's Economy
IMF Rings The Alarm On Canada's Economy
by Tyler Durden
Jul 13, 2017 2:18 PM
Shortly after yesterday's rate hike by the Bank of Canada, its first since 2010, we warned that as rates in Canada begin to rise, the local economy which has seen a striking decline in hourly earnings in the past year, which remains greatly reliant on a vibrant construction sector, and where households are the most levered on record, if there is anything that can burst the local housing bubble, it is tighter monetary conditions. And a bubble it is, as the chart below clearly demonstrates... one just waiting for the pin, which as we suggested yesterday in ""Canada Is In Serious Trouble" Again, And This Time It's For Real", may have finally been provided thanks to the Bank of Canada itself.
Now, one day after our warning, the IMF has doubled down and on Thursday issued its latest consultation report, in which it said that while Canada's economy has regained some momentum, it warned that business investment remains weak, non-energy exports have underperformed, housing imbalances have increased and uncertainty surrounding trade negotiations with the United States could hurt the recovery.
The report - which concerningly was written even before the BOC hiked rates by 0.25% - also said the Bank of Canada's current monetary policy stance is appropriate, and it cautioned against tightening.
"While the output gap has started to close, monetary policy should stay accommodative until signs of durable growth and higher inflation emerge," the IMF said, adding that rate hikes should be "approached cautiously".
Directors noted that Canada’s financial sector is well capitalized and has strong profitability, but that there are rising vulnerabilities in the housing sector... Directors agreed that monetary policy should stay accommodative and be gradually tightened as signs of durable growth and inflation pressures emerge. They recognized that monetary easing could complement fiscal stimulus, and may need to be considered along with unconventional measures if economic activity contracts significantly, although there is a risk that it could exacerbate housing imbalances.
It looks like Justin's promise to bring us a more vibrant and greener economy should thrown on the scrap heap where all of his other broken promises rot away. What a disappointment he must be to those who had faith in him.
White House Lays Out Nafta Renegotiating Strategy
by Tyler Durden
Jul 17, 2017 8:26 PM
The US today released a 17-page outline of a "tough negotiating strategy" to revise the 1994 North American Free Trade Agreement, meant to reduce trade imbalances with Mexico and Canada and boost exports of everything from farm goods to financial services while for the first time saying it would seek to deter currency manipulation by trading partners. The outline comes in advance of preparations to kick off heated negotiations to revamp Nafta.
The much anticipated document (press release and link to full document) released by U.S. Trade Representative Robert Lighthizer said the Trump administration aimed to reduce the U.S. trade deficit by improving access for U.S. goods exported to Canada and Mexico and contained the list of negotiating objectives for talks that are expected to begin in one month. Topping Trump’s list is a "simple" objective: “improve the U.S. trade balance and reduce the trade deficit with Nafta countries.” Lighthizer said that the negotiations would begin no earlier than Aug. 16, 2017.
Specifics aside, the brief position summary offers a glimpse into what a Trump administration trade agenda could look like which until now, Reuters notes, "has been shaped by campaign rhetoric and tweets." Indeed, the demands made by the Trump administration in the NAFTA talks will have far-reaching implications for U.S. trade relations across the globe, especially with China eager to make inroads with Mexico and Canada if the United States is seen to be retreating.
Among the list of general priorities, the administration will seek to eliminate a trade dispute mechanism that has largely prohibited the United States from pursuing anti-dumping and anti-subsidy cases against Canadian and Mexican firms. It also seeks to eliminate a range of non-tariff barriers to U.S. agricultural exports to Canada and Mexico. These include subsidies and unfair pricing structures[emphasis added]
USTR said it would seek to strengthen NAFTA's rules of origin to ensure that the pact's benefits do not go to outside countries and to "incentivize" the sourcing of U.S. goods. It offered no details on such incentives and did not specify how much of a product's components must originate from within North America.
Ironically, the topic of trade is one where Trump has found support from both labor union leaders and Democratic lawmakers, both of whom weighed in on the issue early, reminding Trump they expect him to keep 2016 election campaign promises to protect American workers in NAFTA talks (it was not clear if the Democratic lawmakers, or labor unions for that matter voted for Trump). According to Reuters, they stopped short of demanding termination of the 1994 trade pact with Canada and Mexico. Slamming the trade agreement, AFL-CIO president Richard Trumka said NAFTA had been an "unequivocal failure" and should be completely renegotiated. It is safe to say that the 12.5 million mostly democratic members of the labor unions represented by Trump agreed. [....]
That looks like what we're going to be up against in the upcoming negotiations. The threat is that they will force us to do some things we probably should be doing anyway. The BC lumber guys will have to conform. The supply-management will be at risk. But it feels like the Amercans aren't opening up any of their protected markets.
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