Fixed or variable? Fixed or variable? Everyone wants to feel as though they had made the best choice when deciding between a fixed or variable rate mortgage. In this economy however, there is no right or wrong answer. All the research is based on historic data of what has happened with the rates and trends. The problem is that the “new norm” means tremendous volatility in our economy. Never before has the Canadian marketplace felt the repercussions of global issues as we do today. Economists are changing their predictions daily.
Sage advice would be to do what helps you sleep at night.If you choose a fixed rate, you will not have any fluctuations in your payment for the term of your mortgage. If you choose a variable rate,there will be increases in your payments at some point in time. So, if peace of mind is part of the equation, you will win even if you are paying a little more in the long run.
Canadian Mortgage Trends recently published the following article (October 17, 2011) related to fixed or variable-rate options.
“Just weeks ago you could find variable-rate mortgages at prime – 0.80% (P-.80%) or better. Consumers thought they were here to stay, but the tables turned…fast.
Economic troubles and lender profit motives have shrunken variable discounts beyond expectations. Banks are now commonly quoting prime rate, for example, with little discounting.
Once the last few holdout lenders with P-.50% [prime minus.50%] disappear, discounted variables could move towards P-.25% [prime minus .25%] or worse. Some lenders even suggest that prime or prime plus could be the new normal.
Meanwhile, aggressive brokers are selling five-year fixed rates at 3.25% or less. That’s an unusually low 50 basis point premium to a variable. A spread that tight doesn’t come around often, and it makes you rethink all of the research suggesting variables are the way to go.
Popular research indicates that people have saved money on variable-rate mortgages:
88.6% of the time:
Source: Floating Your Way to Prosperity, 2001, Moshe Milevsky, PhD; Study period: 1950-2000
90.1% of the time:
Source: Moving Mortgages, 2008, Moshe Milevsky, PhD; Study period: 1950-2008
83% of the time:
Source: Variable Rate Roller Coaster Still Hard to Beat, 2011, Douglas Porter and Benjamin Reitzes, BMO; Study period: 1975-2011
Odds like that make some people question the sanity of going fixed. But there’s a little more to the story.
While variables have cost less than 5-year fixed mortgages a majority of the time in the past, favourites don’t win every game. More importantly, assumptions are key when it comes to rate studies. Two important factors have impacted the research quoted above:
A multi-decade bias towards falling rates
Use of posted rates (instead of discount rates)
“Interest rates have been trending downward for two decades,” BMO Capital Markets Senior Economist Benjamin Reitzes told us [Mortgage Trends] in a recent interview. By default, he says, that’s tilted the table more in favour of variables than it otherwise would be.
Looking ahead, rates are no longer able to drop over one percent. The most we can realistically hope for is an extended period of horizontal rate movement. (The Bank of Canada can still cut rates slightly, but the European and American crises and sub-2% core inflation won’t delay hikes forever.)
As a result, Reitzes says, “Going forward, borrowers won’t see the same advantage to variable rates as they have in the past 25 years”
The second factor that’s largely ignored when citing rate research is the actual mortgage rates used for backtesting. Each of the three studies above uses posted rates in their historical analysis.
Reitzes states that this practice distorts the results somewhat. “Discounts off posted rates were not as prevalent historically.” Nowadays, however, “Most people get a (rate) discount if they are credit-worthy borrowers.”
That matters, because the rate discount you get obviously impacts the likelihood of your mortgage outperforming other options.
Here’s an example.
If you look at data from 1970 to 1995, the average difference (spread) between 5-year fixed and variable rates was 126 basis points. (That's 1.26%)
The average difference today is roughly 50 basis points. (0.50%).
That’s a remarkable 76 basis points lower than historical rate spreads. That makes a huge difference in research conclusions.
If you theoretically backtested with the same spreads as today (i.e., 25 bps off prime for variables and 204 bps off posted for 5-year fixeds), you’d find that fixed rates outperform considerably more often.
According to Milevsky, “…The historical probability of doing better with the floating rate mortgage…hovered around 70% to 80%” when the borrower used deep discount rates (based on a 1965-2000 study period).
Using today’s discounts, that 70-80% drops to just 53%, based on our findings from 1970 to 2006. (Obviously today’s spreads would not have applied historically but, as Milevsky maintained in his research above, that is beside the point.)
In other words, the fixed/variable decision would have been a coinflip, based on today’s spreads.
This isn’t meant to imply that fixed rates now have an insurmountable edge. If the Bank of Canada drops rates unexpectedly, a variable could easily beat all other terms over the next five years.
That said, if the BoC’s next rate move is up (which is the highest probability outcome, say economists), the boring old 5-year fixed could certainly outperform. That’s true even when compared to a variable with payments set at the 5-year fixed rate.
The nice part is this: If you go fixed and variables end up winning, you’ll likely be out far less money than in most prior years.”
What do you think? Please post a comment and/or question any time!
Source:http://tracyirwinmortgages.com/blog/ Nov 23, 2011 by tracyirwin
Thursday, January 12, 2012
Thursday, December 22, 2011
Why Refinance???
Mortgage refinancing can provide various benefits, depending on the individual. Refinancing is usually done for two general reasons: to reduce debt or to be able to borrow more for investment purposes. Below are the most common reasons for refinancing a mortgage:
To reduce monthly payments
To reduce, or alter, risk
To consolidate debts
To take advantage of lower interest rates
To take equity out of your home for:
Education
Home Renovations
Investments
Retirement Planning
To purchase second properties
The mortgage industry is constantly changing. For that reason it is very important for you to re-evaluate your current mortgage on an annual basis. The market is continually changing and new products are being introduced all the time, so what may have been a perfect fit a short time ago may not be today. If current interest rates or other mortgage variables have changed since your original mortgage you should compare the costs of refinancing to the amount of money you could save. However, if the costs of refinancing, such as penalties, outweigh possible savings it is better to stay with your current mortgage.
Call us today to schedule your free TUNE UP appointment. Let us help your investment work for you. Call today at 416-410-6663.
To reduce monthly payments
To reduce, or alter, risk
To consolidate debts
To take advantage of lower interest rates
To take equity out of your home for:
Education
Home Renovations
Investments
Retirement Planning
To purchase second properties
The mortgage industry is constantly changing. For that reason it is very important for you to re-evaluate your current mortgage on an annual basis. The market is continually changing and new products are being introduced all the time, so what may have been a perfect fit a short time ago may not be today. If current interest rates or other mortgage variables have changed since your original mortgage you should compare the costs of refinancing to the amount of money you could save. However, if the costs of refinancing, such as penalties, outweigh possible savings it is better to stay with your current mortgage.
Call us today to schedule your free TUNE UP appointment. Let us help your investment work for you. Call today at 416-410-6663.
Tuesday, December 20, 2011
Shoppers feeling frugal amid debt, global woes
Shoppers feeling frugal amid debt, global woes
Published On Thu Dec 15 2011Email Print Rss Article
Raveena Aulakh/TORONTO STAR
With Christmas less than two weeks away, Canadians are still in a frugal mood, the latest surveys of shoppers’ intentions reveal.
Only 6 per cent of Canadians say they plan to spend more on gifts this year than last year, while 41 per cent say they plan to spend less, an Angus Reid Public Opinion poll shows.
The rest, 52 per cent, say they plan to spend about the same amount as last year.
“I see lots of people shopping. I don’t see lots of people carrying bags. What that tells me is people are being a little bit more careful,” said Ken Wong, a professor with Queen’s University’s School of Business. “I think you’re going to see people giving fewer gifts, maybe spending a little more time thinking about what they’re giving. Certainly I don’t see any reason to believe the fact that it’s Christmas is making people any less value conscious than they’ve been since the recession.”
The Angus Reid poll, conducted the week of Nov. 21, comes on the heels of more warnings Canadians are already carrying worrisome levels of household debt.
The average ratio of debt to personal disposable income is now 152.98, Statistics Canada said Tuesday. Households with high debt loads are move vulnerable to unexpected events, such as a job loss or interest rate hike.
Canadians feel relatively optimistic about the domestic economy, but the bad news out of Europe and the U.S. is dampening their spirits, a separate report released Wednesday said.
Canadians say they’re worried about their job prospects, personal finances and whether it’s wise to spend money, according to a survey by Nielsen, a global leader in market research.
Canadian consumers’ confidence fell in the third quarter to 96 points after fluctuating between 99 and 102 points for the past 18 months, Nielsen found. It’s now at the same level it was in the third quarter of 2008.
“We’ve been on a roller-coaster ride, with a lot of ups and downs and screaming along the way and the ride is not over yet,” said Carman Allison, Nielsen’s director of consumer insights. “We’re about to hit another turn.”
The Nielsen survey was conducted in late August and early September as the debt crisis in the European Union was heating up.
Retail sales in Canada are forecast to rise about 2.5 per cent this holiday season, according to an earlier report published by BMO Capital Markets. The forecast excludes cars and gas.
That’s slower than last year’s 3.1 per cent rise and also below the historic average of 4.6 per cent, BMO said.
Published On Thu Dec 15 2011Email Print Rss Article
Raveena Aulakh/TORONTO STAR
With Christmas less than two weeks away, Canadians are still in a frugal mood, the latest surveys of shoppers’ intentions reveal.
Only 6 per cent of Canadians say they plan to spend more on gifts this year than last year, while 41 per cent say they plan to spend less, an Angus Reid Public Opinion poll shows.
The rest, 52 per cent, say they plan to spend about the same amount as last year.
“I see lots of people shopping. I don’t see lots of people carrying bags. What that tells me is people are being a little bit more careful,” said Ken Wong, a professor with Queen’s University’s School of Business. “I think you’re going to see people giving fewer gifts, maybe spending a little more time thinking about what they’re giving. Certainly I don’t see any reason to believe the fact that it’s Christmas is making people any less value conscious than they’ve been since the recession.”
The Angus Reid poll, conducted the week of Nov. 21, comes on the heels of more warnings Canadians are already carrying worrisome levels of household debt.
The average ratio of debt to personal disposable income is now 152.98, Statistics Canada said Tuesday. Households with high debt loads are move vulnerable to unexpected events, such as a job loss or interest rate hike.
Canadians feel relatively optimistic about the domestic economy, but the bad news out of Europe and the U.S. is dampening their spirits, a separate report released Wednesday said.
Canadians say they’re worried about their job prospects, personal finances and whether it’s wise to spend money, according to a survey by Nielsen, a global leader in market research.
Canadian consumers’ confidence fell in the third quarter to 96 points after fluctuating between 99 and 102 points for the past 18 months, Nielsen found. It’s now at the same level it was in the third quarter of 2008.
“We’ve been on a roller-coaster ride, with a lot of ups and downs and screaming along the way and the ride is not over yet,” said Carman Allison, Nielsen’s director of consumer insights. “We’re about to hit another turn.”
The Nielsen survey was conducted in late August and early September as the debt crisis in the European Union was heating up.
Retail sales in Canada are forecast to rise about 2.5 per cent this holiday season, according to an earlier report published by BMO Capital Markets. The forecast excludes cars and gas.
That’s slower than last year’s 3.1 per cent rise and also below the historic average of 4.6 per cent, BMO said.
Thursday, November 24, 2011
Go Variable or Fixed rate?
Your choice of a mortgage can save you, or cost you, a mint. Problem is that in deciding you're also gambling.
Would you pay $100,000 to sleep a little easier at night? You can crunch the numbers different ways, but that's the kind of real money at stake when you choose your mortgage.
If you select one with a variable rate - that's a mortgage when the interest rate can go up or down, in tandem with base lending rates - you could save thousands of dollars in interest over the life of your mortage.
That's because these rates tend to be the lowest on the market. But you could also lose sleep at night if rates go up and your amortization increases.
If you choose the fixed rate, you can be certain the interest rate won't change over the term of your mortgage, but you will pay more if rates are reasonably stable or go down.
There is a third option - mortgage products that blend variable and fixed rates - though consumers need to be aware of the pros and cons.
Consumers also need to be aware they can bargain, playing off banks and brokers against each other, asking for below published rates. A mortgage is a big-ticket item where sellers have leeway to discount and competition among them gives consumers leverae. By bargaining, you might be able to get a fixed rate mortgage for pretty close to a varaible rate deal.
The Toronto Star B, Madhavi Acharya-Tom Yew.
Would you pay $100,000 to sleep a little easier at night? You can crunch the numbers different ways, but that's the kind of real money at stake when you choose your mortgage.
If you select one with a variable rate - that's a mortgage when the interest rate can go up or down, in tandem with base lending rates - you could save thousands of dollars in interest over the life of your mortage.
That's because these rates tend to be the lowest on the market. But you could also lose sleep at night if rates go up and your amortization increases.
If you choose the fixed rate, you can be certain the interest rate won't change over the term of your mortgage, but you will pay more if rates are reasonably stable or go down.
There is a third option - mortgage products that blend variable and fixed rates - though consumers need to be aware of the pros and cons.
Consumers also need to be aware they can bargain, playing off banks and brokers against each other, asking for below published rates. A mortgage is a big-ticket item where sellers have leeway to discount and competition among them gives consumers leverae. By bargaining, you might be able to get a fixed rate mortgage for pretty close to a varaible rate deal.
The Toronto Star B, Madhavi Acharya-Tom Yew.
Tuesday, November 15, 2011
What To Do Before Buying A Home
When you're buying, there is no substitute for driving and walking through neighbourhoods you're interested in. Do it at different periods of the week. For example, early Monday morning will tell you how many shcool buses are in the area and the makeup of the children on the street. How long does it take you to get to work at 7:30am? Don't be afraid to knock on doors and talk to people to get a sense of how open and friendly they are. Most people prefer talking to people in person, rather than on the phone, and people are often proud of the area they live in. If you find the people living in the area are not very friendly, ask yourself whether this is really the neighbourhood you want to move into.
Check the condition of the front landscaping on the street. If the neighbours care about their front lawns, you'll know they take pride in their homes and in the neighbourhood.
As you walk through the neighbourhood, be aware of noises and smells. Can you hear passing cars on a nearby highway? Are there odours from a nearby factory? Sellers may be less than candid about neighbourhood conditions.
You may also want to visit the local planning department at city hall to ask whether there are any plans for new developments in the area. "Developments" can include a brand new shopping mall or a large condominium tower and can have both a positive and negative effect on the neighbourhood. The developments may increase the overall market value of the properties in the area, but the increased traffic could disrupt the peaceful nature of the area.
Consider the possibility of your neighbour's home being demolished and replaced with a much larger home that changes your view and blocks sunlight. In Canada, your view, also called the "right to light" is not guaranteed in planning legislation. Keep this in mind when you're looking for a new home.
Research the schools in the area. Is there a waiting list to get in? Do they offer extracurricular activities your children are interetsed in? Do they publish the test scores of the school? If yes, how do the scores compare to the provincial average?
Does the neighbourhood have sidewalks so your children can ride their bicycles safely? Are the streets well lit at night? If front porches are closer to the sidewalk, it also makes the area safer as there are more eyes watching the street at any given time.
Are you close to churches, synagogues, doctors' offices, and libraries? Are there parks, golf courses, or skating rinks?
Salespeople can also help you understand governmental programs for buyers; the government will assist with your purchase if you qualify. For example, you may be able to borrow money from your RRSP to make the down pyament, or you may be able to use a mortgage program if you don't have a lot of money available for a down payment. There are also land transfer tax programs and federal income tax credits for first time home buyers.
Here's another simple technique: list the top three things you like about your current location. This could include your proximity to shcools, parks, and public transit. Then list the top three things that would be on your wish list, perhaps a large backyard for your children, a home office, or four bedrooms instead of three. Show your lists to the real estate salesperson you decided to work with. These lists will help you focus on what is really important to you; it will keep you from getting carried away by the in-ground pool that may turn out to be more bother to maintain than it's worth. Try not to focus too much on the "features" of a particular home, such as granite countertops and fancy doors. Think about the space you need, both inside the home and in the yard. When you have features and no space, you may need to move again. And don't buy into a home just because you can fit all your existing furniture into it. It is better to buy the house that fits your budget, and get rid of the furniture.
What to do before buying a home....
1. Check the internet to find demographic information about the area.
2. Look at the websites of local real estate salespoeple for infomration about the neighbourhood.
3. Walk the neighbourhood you're interested in.
4. Talk to the people who live there
5. Go at different times of day and different days of the week.
6. Check for nosie and smells.
7. Check the landscaping on the front lawns.
8. Ask at city hall about any planned new developments.
9. If you see a house you like, try to envision it after the neighbours replace their exiting home with a larger new home.
10. List what you like best about your current location; write a wish list for your new location.
11. Don't focus on your existing furniture or on the features of a house you might buy; make sure your new home is the right size for your needs.
Source: "Put the Pen Down" Mark Weisleder, ECW Press 2009.
Check the condition of the front landscaping on the street. If the neighbours care about their front lawns, you'll know they take pride in their homes and in the neighbourhood.
As you walk through the neighbourhood, be aware of noises and smells. Can you hear passing cars on a nearby highway? Are there odours from a nearby factory? Sellers may be less than candid about neighbourhood conditions.
You may also want to visit the local planning department at city hall to ask whether there are any plans for new developments in the area. "Developments" can include a brand new shopping mall or a large condominium tower and can have both a positive and negative effect on the neighbourhood. The developments may increase the overall market value of the properties in the area, but the increased traffic could disrupt the peaceful nature of the area.
Consider the possibility of your neighbour's home being demolished and replaced with a much larger home that changes your view and blocks sunlight. In Canada, your view, also called the "right to light" is not guaranteed in planning legislation. Keep this in mind when you're looking for a new home.
Research the schools in the area. Is there a waiting list to get in? Do they offer extracurricular activities your children are interetsed in? Do they publish the test scores of the school? If yes, how do the scores compare to the provincial average?
Does the neighbourhood have sidewalks so your children can ride their bicycles safely? Are the streets well lit at night? If front porches are closer to the sidewalk, it also makes the area safer as there are more eyes watching the street at any given time.
Are you close to churches, synagogues, doctors' offices, and libraries? Are there parks, golf courses, or skating rinks?
Salespeople can also help you understand governmental programs for buyers; the government will assist with your purchase if you qualify. For example, you may be able to borrow money from your RRSP to make the down pyament, or you may be able to use a mortgage program if you don't have a lot of money available for a down payment. There are also land transfer tax programs and federal income tax credits for first time home buyers.
Here's another simple technique: list the top three things you like about your current location. This could include your proximity to shcools, parks, and public transit. Then list the top three things that would be on your wish list, perhaps a large backyard for your children, a home office, or four bedrooms instead of three. Show your lists to the real estate salesperson you decided to work with. These lists will help you focus on what is really important to you; it will keep you from getting carried away by the in-ground pool that may turn out to be more bother to maintain than it's worth. Try not to focus too much on the "features" of a particular home, such as granite countertops and fancy doors. Think about the space you need, both inside the home and in the yard. When you have features and no space, you may need to move again. And don't buy into a home just because you can fit all your existing furniture into it. It is better to buy the house that fits your budget, and get rid of the furniture.
What to do before buying a home....
1. Check the internet to find demographic information about the area.
2. Look at the websites of local real estate salespoeple for infomration about the neighbourhood.
3. Walk the neighbourhood you're interested in.
4. Talk to the people who live there
5. Go at different times of day and different days of the week.
6. Check for nosie and smells.
7. Check the landscaping on the front lawns.
8. Ask at city hall about any planned new developments.
9. If you see a house you like, try to envision it after the neighbours replace their exiting home with a larger new home.
10. List what you like best about your current location; write a wish list for your new location.
11. Don't focus on your existing furniture or on the features of a house you might buy; make sure your new home is the right size for your needs.
Source: "Put the Pen Down" Mark Weisleder, ECW Press 2009.
Thursday, November 10, 2011
12 Questions To Ask Before Selling Or Buying A Home
Sellers think the home they are selling is special. Buyers want to fall in love with a home before they buy. Yet remember, when you are looking at the real value of a home, it is still going to be about supply and deamnd. Here are some questions to help buyers and sellers determine whether the area they're looking at will be in demand.
1. Is your area's average income increasing faster than the provincial average?
2. Is your area's population growing faster than the provincial average?
3. Is your area creating jobs faster than the provincial average?
4. Does your area have more than one major employer? Real estate values in entire towns and cities can devaule overnight because a major automobile plant closes.
5. Are real estate values rising faster in regions far away from you?
6. Have the local political leaders created an environment that is assisting growth? Look at the land transfer tax policy change in the City of Toronto, introduced on January 1, 2008; it had a negative effect on real estate values all over the city.
7. Are you expecting a new major development?
8. Is your area considering a major transportation improvement? Better roads make it easier for people to commute to and from your area.
9. Is the area attractive for baby boomers as well as young families?
10. Is your town experiencing short term layoffs?
11. What are the demographics in your area?
12. What is the crime rate, and how does it compare to the provincial average.
You can find answers to many of these questions by searching the internet and by reading the statistics published by your municipality and local police departments. Good real estate salespeople who market in your area may include a lot of this information on their own website. The more information you have at your fingertips about a neighbourhood you are interested in, the less likely you'll have an unpleasant surprise after you purchase your property.
Source: "Put the Pen Down!" by Mark Weisleder, ECW Press 2009.
1. Is your area's average income increasing faster than the provincial average?
2. Is your area's population growing faster than the provincial average?
3. Is your area creating jobs faster than the provincial average?
4. Does your area have more than one major employer? Real estate values in entire towns and cities can devaule overnight because a major automobile plant closes.
5. Are real estate values rising faster in regions far away from you?
6. Have the local political leaders created an environment that is assisting growth? Look at the land transfer tax policy change in the City of Toronto, introduced on January 1, 2008; it had a negative effect on real estate values all over the city.
7. Are you expecting a new major development?
8. Is your area considering a major transportation improvement? Better roads make it easier for people to commute to and from your area.
9. Is the area attractive for baby boomers as well as young families?
10. Is your town experiencing short term layoffs?
11. What are the demographics in your area?
12. What is the crime rate, and how does it compare to the provincial average.
You can find answers to many of these questions by searching the internet and by reading the statistics published by your municipality and local police departments. Good real estate salespeople who market in your area may include a lot of this information on their own website. The more information you have at your fingertips about a neighbourhood you are interested in, the less likely you'll have an unpleasant surprise after you purchase your property.
Source: "Put the Pen Down!" by Mark Weisleder, ECW Press 2009.
Thursday, October 27, 2011
Canada’s economy goes on a slower path
Canada’s economy goes on a slower path
jeremy torobin
OTTAWA— From Wednesday's Globe and Mail
Europe’s debt quagmire, a flagging U.S. rebound and slowing growth in China are taking the steam out of Canada’s economic outlook.
Canada's top policy makers said the country’s prospects for this year and next have deteriorated as a slowing global economy weighs on exporters and cuts into confidence at home.
Consumer and business spending is expected to slow and unemployment is expected to hover close to the current 7.1-per-cent level for years, factors that will likely keep interest rates near emergency levels until as late as 2013.
Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty insist Canada and its top trading partner, the United States, won’t slide back into another recession. However, both suggested that outlook depends on European leaders to contain a debt crisis before it pushes the region into a serious slump.
Mr. Carney on Tuesday left the Bank of Canada’s key interest rate at 1 per cent for a ninth consecutive decision. Canada will feel the effects of weak U.S. growth that will persist until mid-2012, and a “brief recession” in the euro zone, he noted.
The bank chopped its forecasts for 2011 and 2012 and said the Canadian economy will not return to full capacity until the end of 2013, 18 months later than policy makers had projected in July. And Mr. Flaherty said the economic projections that underpinned his latest budget face a “significant downgrade.”
The gloomier outlook comes ahead of a crucial gathering of European leaders on Wednesday and a Group of 20 summit next week in France, both aimed at stemming the euro zone debt mess before it engulfs the continent’s banking system and tips the world economy back into recession. The slowdown is already affecting Canadian financial conditions, consumer and business confidence, and trade, the central bank said, also warning that while its forecast assumes the European crisis will be contained, that notion is “clearly subject to downside risks.”
Even if the European situation doesn’t worsen, through the end of 2012 Canada will see “very modest” growth that’s just enough to “keep the unemployment rate treading water,” said Leslie Preston, an economist at Toronto-Dominion Bank.
The Bank of Canada said the economy will grow 2.1 per cent this year instead of its July call of 2.8 per cent, and 1.9 per cent in 2012, down from 2.6 per cent. In 2013, the economy will grow a healthier 2.9 per cent, roughly equal to the average for the two decades before the crisis.
In the meantime, household spending will “grow relatively modestly,” the bank said Tuesday, as lower commodity prices and volatility in markets weigh on Canadians’ sense of financial well-being. Business investment will continue to grow but will also be “dampened” by the global outlook.
All of which means the bank will likely leave interest rates untouched for much of 2012 and possibly into 2013, economists said. Indeed, despite hotter-than-expected inflation readings in recent months, bank policy makers said Tuesday that the drop in energy prices since the summer and a slowdown in big emerging markets like China will tame inflationary pressures everywhere.
Some Canadian companies say they’ve come to accept that their traditional markets will be lukewarm as governments and consumers unwind the massive debt they incurred in recent years.
“These are marathon issues, they’re not sprint issues,’’ said Tom Schmitt, president and CEO of Purolator Courier Ltd., Canada’s largest courier company. “We’re probably talking about years of a little bit of bumpiness along the road.”
Similarly, Don Lang, executive chairman of CCL Industries Inc., a Toronto-based specialty packaging company, said a “pullback” in orders through much of the developed world is still better than a downturn.
“From our perspective, it’s business as usual,” Mr. Lang said. “Positive growth is positive growth, so there are still lots of opportunities for businesses that are well-placed.”
Source: http://www.theglobeandmail.com/report-on-business/economy/interest-rates/canadas-economy-goes-on-a-slower-path/article2212610/
jeremy torobin
OTTAWA— From Wednesday's Globe and Mail
Europe’s debt quagmire, a flagging U.S. rebound and slowing growth in China are taking the steam out of Canada’s economic outlook.
Canada's top policy makers said the country’s prospects for this year and next have deteriorated as a slowing global economy weighs on exporters and cuts into confidence at home.
Consumer and business spending is expected to slow and unemployment is expected to hover close to the current 7.1-per-cent level for years, factors that will likely keep interest rates near emergency levels until as late as 2013.
Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty insist Canada and its top trading partner, the United States, won’t slide back into another recession. However, both suggested that outlook depends on European leaders to contain a debt crisis before it pushes the region into a serious slump.
Mr. Carney on Tuesday left the Bank of Canada’s key interest rate at 1 per cent for a ninth consecutive decision. Canada will feel the effects of weak U.S. growth that will persist until mid-2012, and a “brief recession” in the euro zone, he noted.
The bank chopped its forecasts for 2011 and 2012 and said the Canadian economy will not return to full capacity until the end of 2013, 18 months later than policy makers had projected in July. And Mr. Flaherty said the economic projections that underpinned his latest budget face a “significant downgrade.”
The gloomier outlook comes ahead of a crucial gathering of European leaders on Wednesday and a Group of 20 summit next week in France, both aimed at stemming the euro zone debt mess before it engulfs the continent’s banking system and tips the world economy back into recession. The slowdown is already affecting Canadian financial conditions, consumer and business confidence, and trade, the central bank said, also warning that while its forecast assumes the European crisis will be contained, that notion is “clearly subject to downside risks.”
Even if the European situation doesn’t worsen, through the end of 2012 Canada will see “very modest” growth that’s just enough to “keep the unemployment rate treading water,” said Leslie Preston, an economist at Toronto-Dominion Bank.
The Bank of Canada said the economy will grow 2.1 per cent this year instead of its July call of 2.8 per cent, and 1.9 per cent in 2012, down from 2.6 per cent. In 2013, the economy will grow a healthier 2.9 per cent, roughly equal to the average for the two decades before the crisis.
In the meantime, household spending will “grow relatively modestly,” the bank said Tuesday, as lower commodity prices and volatility in markets weigh on Canadians’ sense of financial well-being. Business investment will continue to grow but will also be “dampened” by the global outlook.
All of which means the bank will likely leave interest rates untouched for much of 2012 and possibly into 2013, economists said. Indeed, despite hotter-than-expected inflation readings in recent months, bank policy makers said Tuesday that the drop in energy prices since the summer and a slowdown in big emerging markets like China will tame inflationary pressures everywhere.
Some Canadian companies say they’ve come to accept that their traditional markets will be lukewarm as governments and consumers unwind the massive debt they incurred in recent years.
“These are marathon issues, they’re not sprint issues,’’ said Tom Schmitt, president and CEO of Purolator Courier Ltd., Canada’s largest courier company. “We’re probably talking about years of a little bit of bumpiness along the road.”
Similarly, Don Lang, executive chairman of CCL Industries Inc., a Toronto-based specialty packaging company, said a “pullback” in orders through much of the developed world is still better than a downturn.
“From our perspective, it’s business as usual,” Mr. Lang said. “Positive growth is positive growth, so there are still lots of opportunities for businesses that are well-placed.”
Source: http://www.theglobeandmail.com/report-on-business/economy/interest-rates/canadas-economy-goes-on-a-slower-path/article2212610/
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