December 2010 Canadian Economic Fundamentals

[Ally]

Provinces face tough financial choices in 2011




After the recession and an orgy of stimulus spending, 2011 will be the year Canada`s provinces begin the hard job of restoring their financial health.




The provinces are on pace to ring up record combined deficits of $26.6-billion in fiscal 2010-11, a gap that has grown 20 times larger in the two years since the global economic collapse.








Just three provinces are expected to balance their budgets this year in 2010 ` Alberta, Saskatchewan, and Newfoundland and Labrador ` thanks to recovering resource prices and, in Alberta`s case, by dipping into a special reserve fund.




For the rest, the path back to budget balance will be long and fraught with hard choices between tax hikes, cuts to favourite programs and squeezing the civil service.




Ontario, for example, isn`t expecting to be back in the black for another seven years, and getting there will depend upon uncharacteristic spending restraint.



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[Ally]

Recession could permanently hobble GDP growth: Report




The recent economic crisis could permanently limit Canada's future GDP growth, unless governments get rid of barriers to foreign ownership and policies that hinder the elderly from working, according to a report published Thursday.




The report by the Centre for Study of Living Standards in Ottawa notes that Canada survived the recession relatively well compared with many other countries but the recession still led to a downward spiral in potential growth.





It says the lower level of investment that came with the downturn led to a one percentage point fall in potential gross domestic product growth last year, which the report authors describe as `severe.` They expect growth to reach about 2 per cent in the medium term, but that is still at a rate below pre-crisis levels.




The authors, who are economists with the International Monetary Fund, suggest this can be fixed by policies aimed at raising potential growth. They suggest encouraging international trade and reducing barriers that prevent foreign ownership of telecommunications companies, airlines and broadcasters.



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[Ally]

Growth will be slow in 2011 for rich nations, IMF says






A two-speed global recovery will extend into 2011, with developed countries growing slowly while emerging-market economies power ahead, the International Monetary Fund`s chief economist predicted on Thursday.




In an interview with the lender`s online magazine, IMF Survey, Olivier Blanchard said the necessity for countries to rebalance their economies by letting exchange rates adjust more freely while taking steps to control debt remains vital.





`Without this global rebalancing, there will no healthy recovery,` he said.





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[Ally]

Canadian home prices drop again




Canadian housing prices dropped in October for the second straight month, but experts say it`s not the start of a precipitous decline like the plunges seen in the United States.


The Teranet-National Bank Composite House Price Index found that prices dropped by 0.4 per cent nationally, pushed by declines in Calgary (1.0 per cent) and Toronto (0.9 per cent).


A decline in September was the first drop after 16 straight months of increases. Since October 2009, national house prices are still up an average of 6 per cent.


National Bank senior economist Marc Pinsonneault, who conducted the study, said he believes prices could drop by another 5 per cent over the next two years, but said that number should be kept in perspective.





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