Tavia Grant Globe and Mail Update

 Troubles in southern Europe are hitting home for many of the 2.4 million Canadians with origins in Greece, Portugal, Italy and Spain.

Euro woes have rocked global stock markets and wreaked havoc with currencies. At the macro level, economists say the region’s fiscal crisis now represents the biggest risk to the global recovery.

But the turmoil is trickling into the micro level, too. From local food importers who are seeing distribution interrupted as Greek suppliers fold, to Italian-Canadians, whose homeland pensions have dwindled with euro weakness, many are watching the crisis with growing consternation.

And they loathe the PIGS acronym.

Alexander Georgiadis imports goods such as olives, feta, baklava and balsamic vinegar as president of Krinos Foods Canada Ltd., the country’s largest importer and distributor of Greek specialty foods.

He has been hit hard by the fiscal crisis on a number of fronts. A string of general strikes in Greece have disturbed shipments. A port dispute also upset distribution. Some of his small-scale, family-owned suppliers have folded. He was able to find other suppliers for some products, such as olives and peppers. But he hasn’t found any replacement for his now-bankrupt supplier of canned anchovies.

Wild swings in the exchange rates are causing worse headaches. Theoretically, importers like Mr. Georgiadis should benefit from the euro’s 15-per-cent slide against the Canadian dollar in the past half year. In reality, it has made business planning chaotic because prices and costs change between when a deal is signed, and when the goods arrive. “The volatility of the currency is the biggest problem we’re facing – trying to guess every time when you should make a payment .”

He’s fielding calls from worried friends in Canada, asking whether they should move their savings out of banks in Greece in case their accounts are frozen. He thinks their money is likely safe – but many people are moving money out of the country anyway.

Then there is the personal worry. “I’m very preoccupied,” says the Toronto-based business man. “It’s not going to be easy to do all the changes that are necessary. There is a big danger of social unrest, and that’s what people are afraid of.”

Canadian officials are also fretting. Bank of Canada Governor Mark Carney said last week that the problems could hamper the Canadian recovery, while Toronto-Dominion Bank said the Greek fiscal crisis “represents the largest single risk to the global economic recovery.”

A host of concerns are rippling through Canada’s Greek community, said Crist Geronikolos, president of the Canadian Hellenic Congress and the Greek Community of Toronto.

Many people have investments in the Greek stock market, which has tumbled 31 per cent in the past six months. Others with property in their home country are bracing for tax hikes. Talk is starting to percolate about immigration – how, if things worsen, more people will want to leave the country.

Then there’s the added insult of the PIGS (Portugal, Italy, Greece, Spain) acronym, which he says compounds a negative perception of Greece. “It is irritating people. You know what? That gives a really bad connotation. There’s a lot of other countries around the world with a much larger deficit, but with the ability to print money. Greece doesn’t. It’s an unfair portrayal,” Mr. Geronikolos said.

Sharing entrepreneurial know-how may be the best way for the ex-pat community to help Greece, said Werner Antweiler, who specializes in trade at University of British Columbia’s Sauder School of Business. “The Greek expatriate community in Canada can contribute to Greece’s recovery by fostering entrepreneurship in Greece, as many immigrants from Greece have become successful business people here in Canada. It’s that kind of entrepreneurial spirit that will move things forward in Greece, along with the necessary policy corrections.”

Some Italian-Canadians are also feeling the effects. The euro’s dive means pensions from Italy and elsewhere are worth much less than a year ago, said Angelo Persichilli, columnist at Italian-language newspaper Corriere Canadese. “They are very concerned,” he said. “Now that the euro has lost 15 per cent, for pensioners it’s a huge loss. We are talking about millions of dollars in losses to vulnerable people who are on a fixed income.”

His newspaper, too, has been hit. Italy’s government, which finances many overseas Italian papers, is proposing to slice the Toronto-based paper’s budget in half as part of its austerity measures.

It has also become tougher to drum up interest in investing in Italy, said Corrado Paina, executive director of the Italian Chamber of Commerce of Ontario. “Canadian investors in this moment aren’t too eager to invest in Italy.” Conversely, he’s seeing more Italian companies that want to boost their presence in Canada because of its relative economic stability.

There are some positive offshoots, however. For many who regularly return to their homelands, the strength of the Canadian dollar is making those visits much cheaper this year. And a falling euro is generally advantageous to Canadian importers.

Brito Fialho, president of the Federation of Portuguese Canadian Business and Professionals, said most members of his organization haven’t yet felt a negative impact. But some people with investments in Portuguese banks are “a little apprehensive.”

Mr. Geronikolos is also apprehensive about his homeland. “We look at this little country … and it hurts to see what’s happening,” he said. Still, the hope is Greece will emerge “after being a little bruised and battered, stronger and better for the experience.” http://www.theglobeandmail.com/report-on-business/europes-economic-woes-hitting-home-in-canada/article1555476

By Julian Beltrame, The Canadian Press

OTTAWA – Bank of Canada governor Mark Carney is warning G20 countries to come to terms with the full implications of the Greek crisis and debt overhangs in other countries, or risk a setback to the global economic recovery.

Canada’s top banker told a Senate committee Thursday that he does not believe the problems emerging in Greece and other southern European countries will lead to a second recession, but they could hamper the recovery.

If markets respond to Greece’s appetite for debt by making borrowing more expensive overall, Carney says there will be an impact on Canada’s growth.

“The situation is serious,” he said, adding that if appropriate steps are not taken “one can expect an increase in longer-term interest rates on a global level.”

“Canada’s fiscal position is among the best, (so) we will do better than others, but we will be pulled up by the rise in global interest rates, and that will have a knock-on effect on investment and growth in this country.”

In Gatineau, Que., Prime Minister Stephen Harper also highlighted the Greek situation at a gathering of representatives of G20 business groups, saying the debt crisis in Athens serves as an object lesson to other governments.

“The Greek crisis reminds us that government borrowing and government debts cannot go on without limit,” Harper said.

Canada plays host this summer to both the G8 and G20 summits, a gathering of leaders from the world’s biggest economies.

Carney, recently ranked No. 21 on a list of most influential world leaders by Time magazine, told the Senate committee that he has been in contact with European officials and is encouraged that there will be a solution to the Greek crisis.

European and German officials assured markets Thursday they were working quickly on approving a bailout for Greece as they try to keep the country’s debt crisis from dragging others into a continent-wide financial meltdown.

But Carney said the problem extends beyond Greece, a view echoed in a TD Bank report released later in the day that names France, Germany and the United Kingdom, along with the so-called PIIGS countries (Portugal, Ireland, Italy, Greece and Spain).

All are approaching or have already surpassed debt burdens of more than 100 per cent of gross domestic product. Canada’s debt burden, by comparison, is expected to peak at around 35 per cent.

“There is no guarantee that this will be sufficient to reassure investors regarding the outlook for the other debt-beleaguered euro members,” TD’s economists said of the Greek rescue efforts.

Even if Europe passes that immediate test, severe austerity measures — such as higher taxes and reduced spending on pensions and health care — will be necessary to stop the budgets of other countries from imploding, they argue.

“That’s the risk,” adds BMO deputy chief economist, Douglas Porter. “You will have a lot of governments forced to take some pretty severe medicine and it takes a lot of the wind out of the world economy’s sails.”

Carney says the industrialized countries can’t do it alone and calls the upcoming June G20 meeting in Toronto critical because of the need to bring emerging economies, such as China, on side.

He said the industrialized countries must make clear to China and other emerging economies that the system cannot function unless they adjust their currencies and play a bigger role in supporting global demand.

The United States, Canada and others have long complained that Asian states have kept their currencies low to boost exports at the expense of other industrial economies, mostly in North America and Europe.

“What’s required is countervailing policies that are in the interests of other countries to expand domestic demand, particularly in emerging markets, to enhance flexibility in exchange rates and obviously keep the global financial system and trading system open,” Carney said.

Carney also stressed the importance to the recovery of the G20 adopting measures to reform the international banking system, which is regarded as a key contributor to the 2008-09 recession.

While Canada’s banks held up well under the stress, Carney said new rules that will require financial institutions to hold more capital reserves to discourage risk-taking will likely also impact Canada’s banks.

“There are some merits to thinking about further strengthening of the capital regime in this country as well,” Carney said.

http://ca.news.finance.yahoo.com/s/29042010/2/biz-finance-greek-crisis-serious-imperil-canadian-economy-says-boc.html

Rob Carrick

The Globe and Mail Published on Thursday, Apr. 29, 2010

Interest rates are rising – we all get that – but it looks like the Big Banks are pushing things a bit with mortgages.

After a pair of increases in the past two weeks, the posted Big Bank five-year fixed mortgage rate now stands at 6.25 per cent. Does that seem high? In fact, it’s just half a percentage point below the average level for the past decade.

We’re supposed to be in the early phase of what could be a long cycle of rate increases. The Bank of Canada hasn’t even started raising its overnight rate, which sets the trend for borrowing costs other than fixed-rate mortgages. The overnight rate could very well start rising June 1 (that’s the central bank’s next rate-setting date), but even then it’s not dead certain that rates will move.

Mortgage rates are linked to bond yields, which have been rising for a while now. But mortgage rates have been moving faster.

Thanks to the always helpful Bank of Canada online interest rate database, we know that the yield for five-year Government of Canada bonds has averaged 4.03 per cent since the beginning of 2000. Five-year Canada bonds had a yield of 3.02 per cent yesterday, which means they’re three-quarters of the way back to their average of the past decade.

The 10-year average for posted five-year fixed-rate mortgages is 6.75 per cent, which means this rate is almost 93 per cent of the way back to its long-term average. There is zero consensus that things have normalized after the financial crisis, but the banks are just about all the way back to pricing mortgages as if they were.

And, no, this “go big or go home” attitude to rates has not been extended to guaranteed investment certificates, which are one source the banks use for the money they lend out as mortgages. The current posted Big Bank five-year GIC rate tops out at 2.1 per cent, or 63 per cent of its 10-year average rate of 3.31 per cent.

John Turner, director of mortgages at Bank of Montreal, said the banks are simply reacting to the rising rate environment in setting borrowing costs for mortgages.

“It’s not about any of us trying to get ahead of things, because the market won’t let us,” he said. “It’s a very competitive market.”

Mr. Turner cited two factors that have driven fixed-rate mortgages lately. One is an effort by the banks to anticipate higher bond yields and avoid repeated increases in mortgage rates. “We don’t like to move rates because it causes dissatisfaction, and it causes disruption in the sales force.”

The other driver of higher mortgage costs is the rising cost of providing interest-rate guarantees for people who are smart enough to lock in a rate as soon as they start looking for a home. Mr. Turner said these costs haven’t been a factor much in recent years because the general trend for interest rates has been downward. Now, with rates on a definite upward path, rate guarantees are a bigger consideration for lenders.

Banks won’t say this out loud, but their own internal business considerations help set mortgage rates as well. Sometimes, this works in favour of borrowers. In February, for example, the banks lowered mortgage rates even as bond yields rose a tick or two. Now, the banks seem to be in a mood to emphasize profits over market share or, as it’s known in bank land, widen spreads between what they charge and what they pay.

“The banks normally do this when interest rates are moving,” said David McVay, a financial services industry consultant with McVay and Associates. “But their retail profits have been pretty strong, and they widened spreads quite well when they put up line-of-credit rates [in 2008-09]. That was a big boost to profits right there.”

Mr. McVay seconded Mr. Turner’s comment about the mortgage marketplace being too competitive for banks to be out of line with their mortgage rates. In fact, there is a huge variation in rates right now that demands some shopping around from homebuyers and people facing renewals.

One of the better deals in the mortgage market today is BMO’s offer of a 4.35-per-cent five-year, fixed-rate mortgage. You can’t take an amortization longer than 25 years with this mortgage, and there’s less room to make pre-payments than there is with a standard BMO mortgage. But a glance at the websites of several mortgage brokers yesterday suggests you won’t find a lower rate.

http://www.theglobeandmail.com/globe-investor/are-big-banks-jumping-the-gun/article1550163/   

Julian Beltrame, THE CANADIAN PRESS
The Canadian Press

OTTAWA – Canada is leading the other G7 countries out of recession with the fastest growth in a decade, but it will be trailing those countries in a few years, the Bank of Canada said Thursday.

The central bank’s latest economic outlook released Thursday makes several bold predictions, including that Canada’s fast start out of last year’s slump is already slowing, that the housing boom is fizzling out, and that the country’s long-term growth prospects are discouraging.

And governor Mark Carney is cautioning markets not to be so sure Canada’s central bank will raise its key interest rates in a matter of weeks.

On Tuesday, the Canadian dollar shot up more than 1.5 cents to above parity with the U.S. currency after the Bank of Canada said it was dropping its promise not to raise rates before July at the earliest.

But Carney told a news conference Thursday that there is still considerable risk in the global economy, or to anticipating his next move.

“There is nothing pre-ordained from this day forward,” Carney said to a question on interest rates.

Most economists interpreted Tuesday’s statement as an alert to plan for higher rates in June, but some argued Carney had left himself plenty of wiggle room.

“The Bank of Canada has limited scope to raise interest rates in the next several months,” said Brian Bethune, chief economist with IHS Global Insight.

“While we may see one or two token moves to raise the overnight rate by a quarter of a point in the June to October window, action to raise rates will be very limited” by the fact doing so would further boost an already strong dollar.

In Thursday’s report, the bank said it is planning for the dollar to hover around parity for the next three years and listed it as a major impediment to strong growth because it will make exports less competitive in global markets.

The dollar hovered just above and below parity throughout the Thursday trading day.

The report says Canada’s economy expanded by 5.8 per cent in the just past quarter, the largest advance since 1999, but growth will likely slow to 3.8 per cent in the April-June period, and to 3.5 per cent the rest of the year.

It gets worse. Economic growth will average 3.1 per cent in 2011 and 1.9 per cent in 2012, about half what it will be in the United States and lower than both Europe and Japan.

“There is some good news here, our economy has returned to growth,” said Carney, noting that more Canadians will find jobs and those who have had their hours reduced are more likely to be called in to work longer.

But as he has in the past, Carney warned that the longer-term prospects for the Canadian economy is modest unless the corporate sector starts investing heavily in new machinery and equipment to become more productive.

Canada is also facing a bigger issue of an aging workforce than the United States, exacerbating the divergent trend line between the two economies.

“This is in the hands of the private sector,” Carney said. “If we want to grow faster, we’re going to have to work smarter, invest better, (and) build new markets.”

The bank said it fully expects businesses to step up investment this year, but it could hardly get worse – business investment actually declined in the fourth quarter when the rest of the economy was rebounding.

A big reason the economy has shot out of recession is that Canadian consumers, particularly home-buyers, have “front-loaded” their purchases because of record low interest rates.

But Canadians that bought homes in the past six months, or took advantage of the now defunct home renovation tax credit, won’t be doing so in the future, hence bringing an end to the housing sector boom.

Housing, which is contributing about 0.6 per cent to economic growth this year, will actually be a slight drag next year, the bank forecasts. That doesn’t necessary translate to an outright decline, but it does foresee prices and sales levelling out.

For the bank, that is a good thing because it regards the housing market as too hot for home-buyers’ own good. It has warned repeatedly that households should make sure when they purchase a home that they will be able to afford the monthly payments once interest rates rise.

In the main, the bank’s view of the Canadian economy and the world is actually brighter than the previous published analysis issued in January, while noting the high level of uncertainty.

The world economy will grow at around four per cent for the next three years, the bank says, led by China and other emerging countries. This should help Canada’s export sector, the bank said.

The advanced countries, which borrowed heavily to soften the blow from the 2008-09 recession, will end up with lower activity going forward. Europe will be the weakest major economic region, with growth rates of 1.2 and 1.6 per cent over the next two years.

The bank also issued a more detailed explanation of its fears about inflation that provides more ammunition to analysts who expect Carney to raise the policy rate from 0.25 per cent to 0.5 per cent at the next opportunity, June 1.

The report says underlying inflation is higher than it had expected it to be at this point in the recovery because wages unexpectedly held up during last year’s recession. Shelter costs have also increased faster than expected, it said.

The bank also warns that Canadians can expect prices to receive a 0.6-per-cent boost after July 1, when Ontario and British Columbia move to a harmonized sales tax.

The new tax will cut costs to businesses, however, and the bank says cost savings will likely be transmitted into prices in the second half of they year and trim inflation by 0.3 percentage points.

Total inflation, the amount Canadians actually see when they go to the store, will be higher than two per cent for the rest of this year before returning to target in the second half of 2011, it said

When it comes to the 13-per-cent harmonized sales tax kicking in July 1, lots of home buyers and sellers appear to be in for a big surprise, says the Canadian Real Estate Association.

“I run into people who still don’t know its coming,” says association president Pauline Aunger. “There are people who don’t listen to the news or read the newspaper.”

The controversial tax doesn’t apply to resale homes, but it does hit new ones — with a 75-per-cent rebate on the first $400,000 of the price tag — as well as real estate commissions, legal fees, home appraisals and moving costs.

Aunger urges people buying or selling homes and condos to close their deals before Canada Day if possible, noting the average buyer of a re-sale home could save about $1,500 by beating the controversial new tax.

The HST is a marriage of the broadly based 5 per cent federal Goods and Services Tax — already charged on the above items and most goods and services — and the 8 per cent provincial sales tax in Ontario, which does not now apply to real estate commissions, new homes and the like.

That means an extra 8 per cent in taxes, although the government notes it cut income taxes Jan. 1 to help offset the HST hit.

For example: the real estate association calculates the additional tax at $80 on typical legal costs, $1,209 on sales commissions, $32 on home inspections, $80 on moving and $24 on home appraisals.

“If you’re buying, go out and buy now,” advises Aunger.

The jury is still out on whether the fast pace of home sales and rising prices is due to the looming HST, because experts say low interest rates are also playing a role.

It’s generally too late to avoid the HST on purchases of new homes because the government has ruled that deals to buy houses after June 18 are subject to the tax, says president Stephen Dupuis of the Building Industry and Land Development Association.

“Since last June, most of what you buy is for closing after this July 1, because most new homes are pre-sold and then it takes time to build them,” he explains. “Whether people know they’re still paying the HST or not, they’re still buying like crazy. We honestly don’t expect a blip after July 1.”

On a new home costing $500,000, the extra provincial portion of the HST totals $40,000. The 75-per-cent tax break for the first $400,000 is gradually phased out as the price rises above $500,000.

By Julian Beltrame, The Canadian Press

OTTAWA — The Bank of Canada has yet to officially start hiking interests rates, but already Canadians are feeling the impact of higher borrowing costs.

Analysts say expectations the central bank will boost rates June 1 at the earliest and July 20 at the latest have boosted the Canadian loonie and pushed the big banks to twice raise mortgage rates in the past two weeks.

The loonie has been steadily gaining ground for weeks and Wednesday closed above parity, at 100.08 cents U.S., for the first time in almost two years.But economists warn there is danger in the Bank of Canada moving ahead of the U.S. Federal Reserve on hiking rates, even if it is justified by the fundamentals.

“The Bank of Canada is basically going to fly solo,” said Benjamin Tal, an economist with CIBC World Markets.“The markets are already discounting 75, maybe 100 basis points and it’s already in the price of the dollar.”

Canada’s economy has sprinted forward following last year’s recession to record a five per cent advance in the fourth quarter of 2009, and expectations are the first quarter will show an even quicker pace.

More importantly, Canada has recouped nearly half of the total job losses of the downturn, while the United States still struggles with the disappearance of 8.5 million jobs, a decimated housing market and a financial sector still hobbled by an excessive overhang of debt.

In testimony to Congress on Wednesday, Fed chair Ben Bernanke suggested it will be some time before the U.S. starts raising the policy rate from the current near-zero emergency stance.

“The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period,” Bernanke told a Congressional committee.

Economists say moving ahead of the U.S. — which is all but certain — could have some beneficial effects, such as cooling what many believe is an overheated housing market by making mortgage costs higher.

But the bigger problem is that higher rates attract more foreign capital into Canada and gives an additional lift to the loonie, something few, except for possibly cross-border shoppers, want.

Finance Minister Jim Flaherty said Wednesday that the strong loonie is a reflection of the relative strength of the Canadian and U.S. economies.

While true, said Liberal critic John McCallum, a former bank economist, there is a risk in raising rates while the U.S. keeps theirs low.

“Then our dollar could get even stronger and that would be really bad for exports and jobs,” he said.

While some analysts have speculated that Canada’s manufacturing sector is no longer as exposed by a strong currency as a decade ago, few disagree with the notion that currency appreciation is a net negative for the economy.

This week’s trade numbers showed the rebound is almost all due to energy, while the goods side registered a $4.4 billion deficit in February.

Carl Weinberg of U.S.-based High Frequency Economists was not impressed.

“You might think that the largest supplier of crude oil to the United States would be able to run a bigger surplus,” said Weinberg. “Blame the strong loonie for a lot of the woes of exporters, especially since so much of what Canada sells is priced in U.S. dollars.”

Given the signals the bank has sent, it would take a major reversal in the recent spate of good economic news, as well as easing inflationary pressures, to stay the central bank’s hand on rates.

However, Sheryl King, chief economist with Merrill Lynch in Canada, says she does not believe governor Mark Carney will get too ahead of the curve and will keep the increases modest.

She says the economy may be hot now, but she sees it cooling in the second half of the year, and Carney putting on his brakes until the Fed shows signs of joining him on the policy tightening track. http://news.therecord.com/Business/article/698287

Julie Fortier, Financial Post 

OTTAWA – With the Canadian economy doing surprisingly well over the past six months, many see higher interest rates from the Bank of Canada in the not so distant future, but according to a report released Thursday from CIBC’s chief economist Avery Shenfeld, rates are likely to remain at a very low 2.5% through to 2011.

In CIBC World Markets’ latest Global Positioning Strategy report, Mr. Shenfeld lists several reasons for Bank of Canada Governor Mark Carney to keep interest rates subdued after July. He points out that the U.S. will probably have a more gradual approach to raising rates and if Canada gets too far ahead, that could send the Canadian dollar soaring.

“While factories are recovering in Canada alongside a global industrial revival, output remains nearly 20% below the pre-recession peak, and wages are now substantially above those stateside without the productivity gains to match. There’s only so much of a competitive challenge that non-resource exporters can take in short order,” Mr. Shenfeld said.

He also pointed out that inflation is not expected to rise much further and stimulus spending is expected to be reigned in by governments – including Canada’s – which will slow growth.

“If the U.S., the U.K., and Japan all move from huge stimulus to even modest restraint, Canada will feel it in our export prospects come 2011,” Mr. Shenfeld pointed out.

Mr. Carney has promised to keep interest rates where they are at 0.25% until the end of June. However, the latest reading of Canada’s economic growth showed the core inflation rate at 2.1% in February, far above the Bank of Canada’s forecast of 1.6% for the first quarter of the year. Many analysts believe the Bank of Canada will not wait until mid-2010 to raise rates.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2777584#ixzz0kYfL1zaB

By The Canadian Press

TORONTO – Prices for all key housing types were up more than 10 per cent across Canada in the first quarter, although some markets were hotter than others.

That’s according to a national real-estate survey by Royal LePage, which says the Canadian housing market will likely become more moderate as 2010 unfolds.

The survey found that, on a national basis, the average price of a detached bungalow in Canada rose to just over $329,000 in the first three months of this year – up 11 per cent from the first quarter of 2009.

Standard two-storey homes rose 10.3 per cent, to about $365,000, while condominium units increased by 10.9 per cent to just under $229,000.

Royal LePage, which is a national real-estate sales organization, says the national numbers don’t paint the whole picture, however.

It says some local markets, such as Vancouver and Toronto, may be overheated while most others have shown more moderate growth.

By Malcolm Morrison, The Canadian Press

TORONTO — A solid employment report showing the strongest U.S. job growth in almost three years should give stock markets a lift this coming week.

The U.S. Labour Department reported Friday that the economy created a total of 162,000 jobs during March. But investors were particularly relieved at data showing that the private sector was responsible for 123,000 of those positions, the most since May, 2007.

“Very positive (and) showing steady job growth,” said Jennifer Lee, senior economist at BMO Capital Markets.

“Some people will pooh-pooh the report and say it’s just a month. And that’s true: it’s just one month but the fact that the private sector increased so much, that’s the main part.”

Monday will be the first chance investors have to react to the employment report as stock markets in Canada, the U.S. and many other countries were closed for the Good Friday holiday.

Lee noted that the report is part of a wider trend showing a continuing recovery from the worst recession in decades.

Data released in the U.S. last week showing rising house prices from December to January, improving consumer confidence and greater than expected expansion in the manufacturing sector — not just in the U.S., but also in the eurozone and China — sent stock markets in Toronto and New York higher last week.

“The global economy is in much better shape than the U.S. but even in the U.S., you’re making some progress,” said John Johnston, chief strategist The Harbour Group at RBC Dominion Securities.

“And the odds of a double dip in the U.S. are quite limited. The equity markets are reflecting the fact that we’re in a sustainable recovery, even if there’s some ebbs and flows.”

The Canadian employment report for March will be released Friday.

It is expected to be positive as economists forecast that the Canadian economy cranked out about 25,000 jobs last month, on top of just under 22,000 jobs in February.

“I think what we’re seeing is underlying job growth in Canada,” added Johnston.

“The trend is improving, the economy has picked up momentum. And the demand side is coming on, profitability is improving which means that capital investment is improving which means jobs both in Canada and the U.S.”

The data could drive the Canadian dollar to parity with the U.S. dollar for the first time since July, 2008 — if it doesn’t happen before then. Rising commodity prices helped push the loonie to just over 99 cents US at the end of last week.

Economists widely expect the loonie to hit parity sooner rather than later because of the solid economic recovery in Canada and the increased likelihood that the Bank of Canada could move to hike interest rates from near zero as early as June 1.

But while a move to parity wouldn’t be a surprise, the loonie could just as easily backtrack as it did during March when the U.S. dollar strengthened during the latest set of worries about the European debt crisis.

And Lee observed that the American currency could strengthen this week, depending on the content of the minutes of the latest Federal Reserve meeting on interest rates, which is being released Tuesday.

“It would be interesting to see if there are any more attentive signs toward exit strategies,” said Lee, since a sign that the Fed could be set to raise interest rates could bolster the greenback and weaken the Canadian dollar

OTTAWA – The stalwart Canadian economy marched doggedly forward in January, growing faster than anticipated thanks to a healthy boost from a manufacturing sector that appeared to be in full rebound from the recession.

The month’s 0.6 per cent rise in real gross domestic product, reported today by Statistics Canada, was the biggest one-month lift in more than two years and just ahead of an economist consensus forecast of 0.5 per cent.

“The Canadian recovery is becoming more fully entrenched and is showing surprising strength, with the goods-producing sector in full rebound mode,” Douglas Porter, deputy chief economist for BMO Capital Markets, wrote in a note to clients.

“Importantly, the recovery looks to be broadening beyond the initial push in housing and consumer spending, as manufacturing has advanced for five straight months.”

The solid improvement will likely put more pressure on the Bank of Canada to raise interest rates in the next couple of months from their historic lows of 0.25 per cent.

Goods-producing industries grew 1.3 per cent, largely on the strength of manufacturing and construction, the agency said. After a 1.2 per cent gain in December, manufacturing was up 1.9 per cent in January, with 17 of 21 major groups advancing.

The construction sector advanced 1.7 per cent, on a four per cent increase in residential construction and a one per cent rise in engineering and repair work. Non-residential building construction bucked the trend, falling off a slight 0.5 per cent.

“These are unambiguously strong results, with GDP now rising at a whopping 6.9 per cent annual pace over the November-to-January period,” Porter said.

“And, the economy has already recouped more than half of its recession losses, with GDP now up by 2.7 per cent from last May’s low.”

The loonie rose following the announcement, moving up 0.43 cents to 98.52 cents US in morning trading.

Mining and oil-and-gas extraction also increased in January.

The production of services advanced 0.4 per cent, led by wholesale trade.

Retail trade, the finance and insurance sector, transportation and the public sector also rose.

Meanwhile, the output of real estate agents and brokers, some tourism-related industries as well as agriculture and forestry retreated.

The volume of wholesaling activity increased 2.9 per cent with all wholesaling trade groups posting gains except apparel and alcohol and tobacco.

Value added in the retail trade sector rose 0.8 per cent in January.

Significant increases were registered in building and outdoor home supplies stores, home furnishings stores as well as food and beverage stores. Declines were recorded at new- and used-car dealers and at gasoline stations.

Porter added that early statistics for the month of February also look promising, with the gain of 60,000 full-time jobs, housing starts up six per cent and auto sales at their highest level in almost two years.

“Given today’s results, and the fact that February is shaping up well, first-quarter GDP growth looks set to easily surpass our recently revised call of a gain of 4.7 per cent (let alone the Bank of Canada’s latest estimate of 3.5 per cent), with growth on track for 5 ½ per cent even if the next two months come in at just up 0.2 per cent.”

The Canadian Press  http://news.therecord.com/Business/article/691423