CALL: 1 800 465 7166 between 8:00am and 5:00pm ET

Transunion Canada

OTTAWA – Canada’s economy is becoming more solidly entrenched with the private sector beginning to play an increasingly pivotal role in leading the country out of recession, the Bank of Canada said today in its latest policy report.

In a mildly upbeat assessment of the recovery, the central bank’s quarterly outlook contains some upward revisions for growth in the United States, China, Europe and Japan that should help Canada’s battered exporters and manufacturing sector in the next two years.

And it says Canada’s economy will grow faster going forward than expected, in part because it got off to such a slow start last summer.

Overall, the bank appears more optimistic about the sustainability of the recovery that is happening around the world, although it also cautions that risks of a stall remain.

There is also some upside hope, the bank adds, that conditions may continue to improve better than projected.

“It is thus possible that the recovery in global demand could be more vigorous than projected, resulting in stronger external demand for Canadian exports,” the bank judges.

In Canada, it adds: “Economic growth is expected to become more solidly entrenched over the projection period as self-sustaining growth in private demand takes hold.”

The analysis is broadly similar to what the bank said last October, when it last issued a comprehensive forecast on the economy, but the tone is brighter at the margins and the danger signals less frequent.

For months, bank governor Mark Carney has been cautioning Canadians not to get overextended in purchasing homes, but there is no such warning this time. In fact, the bank says it expects the housing market to cool this year and next as a result of pent-up demand becoming satiated and relatively high home prices.

As well, the bank appears more confident that the private sector is ready to take the handoff from governments as the main driver of economic growth.

The bank says Canada’s reliance on government stimulus spending likely hit its peak at the end of 2009, representing about two per cent of all economic output for the country, and will decline this year.

By 2011, the private sector will be the sole driver of Canadian growth, the bank said.

But while Canada’s domestic demand continues to be the key driver of economic growth, the big change from October’s outlook is that prospects are also improving for the country’s battered export and manufacturing sectors.

“Export volumes are expected to continue to recover over the projection period in response to growing external demand and higher commodity prices. Export growth is projected to be somewhat stronger than was expected last October, owing to a more favourable outlook for the U.S. economy, particularly in the sectors that figure most importantly for Canadian exporters,” the bank says.

Those volumes would be even greater but for the strong Canadian loonie, it adds.

Canada’s auto and forest products sectors were particularly hard-hit during the recession, the bank notes, and will benefit most from renewed growth in the U.S. Canadian manufacturers shed about 200,000 jobs last year.

The central bank now says the U.S. gross domestic product will grow by 2.5 per cent this year, largely as a result of improvement in the financial sector. Three months ago, the bank estimated U.S. growth at a mere 1.8 per cent.

In Canada, the bank says the economy likely grew by 3.3 per cent in the last three months of 2009. For 2010, the economy will advance by 2.9 per cent, followed by a 3.5 per cent pickup in 2011.

In retrospect, the bank noted that Canada’s recession, while severe, was not nearly as damaging as it was in other industrialized countries, partly because of Canada’s solid banking system.

But neither has the recovery been particularly impressive in Canada, starting with a disappointing 0.4 per cent advance in the third quarter of 2009, which the bank attributes to a surprisingly strong influx in imports. The U.S., backed by a weak currency, rebounded more strongly with a 2.2-per-cent increase in the third quarter and a bouncy 4.7-per-cent advance in the fourth quarter of 2009.

The bank believes Canada will make up for the slow start this year, projecting it will advance stronger than the U.S., Japan and Europe.

The main engine of global growth remains China, however, which is expected to be back close to double-digit growth this year.

by Michelle Warren, Bankrate.com
Wednesday, January 6, 2010provided by

  Credit crunch, debt crisis — call it what you will, but the current economic climate is spurring people to get their own finances in order. For Jack and Sarah Stewart, of Toronto, this means tackling the $40,000 in debt they’ve allowed to balloon during the past eight years. With their mortgage coming up for renewal, they’re thinking of clearing the slate and rolling the burden into their mortgage.

“We want to consolidate our debt, but we’re not sure if increasing our mortgage is the best way to do it,” says Jack, who asked that his and his wife’s names be changed to protect their privacy.

He’s not alone. Laurie Campbell, executive director of Credit Canada, says it’s a question people grapple with all the time. “Homes in the past have been your sacred cow,” she says, referring to the drive to pay down one’s mortgage as quickly as possible.

These days, however, with people juggling debts and paying varying rates of interest, increasing one’s mortgage can be a smart move, even if it takes longer to pay off.

Lowering interest rates

Peter Majthenyi, a mortgage planner with Mortgage Architects, in Toronto, says it’s a common theme as homeowners strive to bring down the overall interest they pay, as well as reduce their monthly obligations. He prefers to think of it as repositioning one’s debt, and in his experience, “in almost all cases, it’s justified.”

“If you have debt that is sitting at 18 percent interest, then it certainly makes sense,” says Campbell, adding that it’s something to consider only if you have enough equity in your home and if your mortgage is coming up for renewal (read the fine print to find out if the penalties for breaking a mortgage outweigh the possible benefits).

Majthenyi notes that if you’re working with the same lender, there’s often no penalty involved with increasing your mortgage before the term expires.

The Stewarts seem like prime candidates. They have a $200,000 mortgage on a house worth about $425,000. They have plenty of equity, they’re up for renewal at the end of the year and they say they’re serious about getting their finances in order. Ideally, they’d roll the debt into their mortgage, continue an accelerated payment program whereby they pay every two weeks and they would not increase their amortization period, but instead increase their payments.

Dealing with debt

It’s a good plan, says Campbell, who thinks all mortgage holders should accelerate their payments. She also likes the idea that they plan to stick to a 17-year amortization instead of renegotiating another 25-year mortgage. However, she stresses that none of this amounts to much if the Stewarts are going to continue the same spending habits and find themselves in a similar position five years from now. “They have to understand what got them into this $40,000 debt in the first place. They have to make sure they don’t fall victim to that again.”

She recommends cutting up credit cards, especially store cards, which have higher rates of interest, and not using one’s line of credit like a bank account.

The Stewarts say the bulk of their debt was incurred for renovation costs, including a new kitchen and installing hardwood flooring, but admit their spending habits need a makeover. “We’re always dipping in to our line of credit because we’re strapped for cash,” says Sarah Stewart. “I think if we consolidate the debt, it’ll increase our cash flow and we’ll be able to live within our means.”

Jeanette Brox, a Certified Financial Planner with Investors Group in North York, Ont., always encourages her clients to look at the big picture when it comes to financial health: “My job is to make them think outside the box.” She says helping people manage debt, while securing their future, is essential. “People need to think beyond what our parents did, which was paying down the mortgage,” she says. “I used to think that way too, but I don’t anymore.”

In her view, the Stewarts and others like them need to take an aggressive approach if they ever want to get ahead. Not only do they need to improve cash flow, but they also need an emergency fund for unforeseen expenses, not to mention a retirement plan.

Planning for the future

Brox admits a lot of people would balk at the idea, but she thinks the Stewarts, both in their early 30s, should not only roll their debt into the mortgage, but increase their mortgage an additional $35,000 for a total of $275,000. To make payments more manageable, she’d also recommend increasing the amortization period to 25 years. She would invest $25,000 in mutual funds and further $10,000 in a money market account (earning about two percent interest).

“This is what I call a lifestyle fund,” says Brox, adding that part of the interest cost on the mortgage would be tax deductible. “It’s a win-win situation, but you’ve got to be really disciplined.”

That means using their increased tax return to pay down the principal on the mortgage, thereby helping compensate for the interest cost of carrying the additional $35,000. The other bonus is that within five years (or so), the $25,000 registered retirement savings plan, or RRSP, will have grown to about $40,000. She stresses this is a long-term plan and people have to realize that the market is going to rise and fall.

“It’s all based on comfort level,” says Brox, adding that the biggest mistake she sees with people who reposition debt is that they don’t have a long-term plan and, as Campbell, pointed out, go back to old spending habits. “People need to have their whole financial picture analyzed. It’s something to consider, but you need to work with a planner or bank manager.”

Lines of credit

There’s a whole school of thinkers that shudder at the thought of increasing one’s mortgage. At the core of this is that you’re trading unsecured debt for secured debt and paying interest on that debt for the entire life of your mortgage, which can dramatically increase the cost of borrowing. In addition, refinancing also involves added legal costs (in most cases a minimum of $500). An alternative is consolidating debt onto a line of credit or home equity loan, which have higher interest rates than a mortgage, but can be paid off more quickly.

This works in theory, say our experts, but rarely in real life. “A lot of people just make the minimum payment and never get it cleaned up,” says Brox.

“I’m wary of open lines of credit because they can easily stay at $50,000 forever,” says Campbell, adding that an increased mortgage payment forces people to be more disciplined in paying down debt.

As for paying the debt for the entire length of your mortgage, all the experts stress that the way to combat this is by channelling extra funds back into the mortgage and paying off the mortgage early. This could mean accelerated payments, using tax returns or bumping up the payments. “We’re putting all the money back into the principal of the mortgage,” says Majthenyi, who points out that an extra $10,000 on a mortgage costs about $50 a month, while a $10,000 loan requires minimum payments of $300.

In the Stewart’s case, it’s costing them about $1,000 a month to cover $40,000 debt. If it’s part of their mortgage, it translates into about $200. Ideally they’d direct the bulk of that money back into their mortgage through an annual lump payment or by increasing individual payments by a few hundred dollars.

Repositioning debt into one’s mortgage is a sound option for people who are committed to changing bad habits and/or taking a long-term approach to getting their finances in order.

When it comes to money, Brox says that people need a big-picture plan, not a band-aid solution: “A lot of times it’s not what you make but how you manage it.”

Michelle Warren is a freelance writer in Toronto.

Roma Luciw Globe and Mail

More Canadians are heeding the interest-rate warnings and focusing on curbing their debt loads in 2010.

A Manulife Financial poll released Tuesday found that paying down credit cards and lines of credit is growing as a financial priority among Canadians. In fact, more than a quarter, 28 per cent, pegged debt elimination as their main goal, up from 24 per cent in 2009 and a five-year high.

The results come at a time when households are tackling post-Christmas credit card bills and struggling with record debt, both mortgage and consumer. With interest rate hikes on the horizon, Bank of Canada Governor Mark Carney last month cautioned Canadians against taking on more debt than they can handle.

Despite this red flag, Canadians dug deeper this December, with spending in the holiday period rising 3.44 per cent in volume over the previous year, according to Moneris Solutions, which processes credit, debit and online payments.

The central bank estimates there was nearly $1.4-trillion in total household credit outstanding in October, the most recent data available, up from $1.3-trillion a year earlier. Much of the growth stems from mortgage debt, which stood at roughly $950-billion in October, compared with less than $890-billion a year earlier.

The Manulife national survey of 1,000 people, conducted last month by Research House, found that the second most-cited financial priority among Canadians was paying down the mortgage. It was chosen by 14 per cent of respondents, up from 11 per cent last year.

The third priority – saving for retirement – was listed by 11 per cent of those polled, down from 14 per cent a year ago.

“Paying down debts is understandably a priority, particularly at this time of year,” Paul Rooney, chief executive officer of Manulife Manulife Canada, said in a news release. “Given the economic challenges in 2009, we shouldn’t be surprised to see more Canadians focused on ensuring their financial house is in order.”

Only 5 per cent of respondents listed saving for a child’s education, through a tool like a registered education savings plan, and saving for purchasing a home, as financial priorities, on par with last year’s results.

 The Canadian Press  – After a challenging year, the economy is set for a recovery in 2010, according to a new forecast by RBC Economics.

It says although the economy contracted at an average of 2.5 per cent this year, the stage is set for positive growth in 2010. RBC predicts real gross domestic product will rise by 2.6 per cent next and will continue to expand in 2011, at a 3.9 per cent clip. The report suggests the peak of stimulus spending will occur in 2010, with improving credit conditions fuelling growth next year and in 2011.

In addition, consumer spending is projected to increase by 2.3 per cent next year before accelerating to 2.7 per cent in 2011.

However, the bank says the jobless rate is expected to remain high at about 8.7 per cent in 2010 before falling to 7.8 per cent in 2011.

“With the financial crisis behind us and the U.S. economy on the mend, Canada’s economic growth is expected to rise steadily throughout the next year,” said Craig Wright, RBC senior vice-president and chief economist.

“While challenges remain, a peak in stimulus and infrastructure spending across the federal, provincial and municipal governments, along with low interest rates, should result in a sustained recovery.”

By Rose Simone, Record staff

KITCHENER – The Canadian economy will recover in 2010, but the challenge ahead is to get the private sector to take more of a lead in that growth, a Bank of Canada economic analyst said in Kitchener today.

Even though the global economy is responding to the stimulus efforts of governments and central banks, the private sector will need to take the reins eventually, said Jane Voll, a senior regional representative in the Canadian economic analysis department at the bank.

“The next thing we need to do is make the transition from policy-induced growth to private sector growth, and that will take tremendous consumer and business confidence,” she said at a Greater Kitchener Waterloo Chamber of Commerce breakfast meeting.

Voll, who is originally from Waterloo Region, said the government and central bank policies to stimulate the economy were necessary. “A year ago, we were looking at the most severe financial crisis since the Great Depression,” she added. The measures have worked, and Canada’s recovery appears to be well underway, Voll said.

Commodity prices have recovered, the housing market has improved and consumer confidence and spending is up compared to the end of last year, she said. Manufacturing shipments are starting to rise again and industries are saying they expect to increase spending on machinery and equipment in the coming year, she added.

The Bank of Canada is forecasting economic growth of three per cent in 2010 and 3.3 percent in 2011.

But there are “challenging headwinds,” such as the rise of the Canadian dollar, which could create “a downward pressure on the Canadian economy,” Voll said.

On the global front, a major concern is managing the current accounts imbalances between debtor nations and those that have trade surpluses.

“The saving countries will have to adjust their practices and the borrowing countries as well. This could happen in an orderly fashion and the economy could continue to grow, but if it happens in a disorderly fashion, it could create difficult circumstances for several economies, Canada’s included,” Voll said.

Voll said that for now it is important for the central bank to keep the overnight interest rate at its historic low because even though consumer spending is starting to come back, “there are still more deflationary pressures than inflationary pressures.”

She said analysts are looking carefully at the signals and trying to “get the timing right” for when the government can pull back and the private sector can take the reins. “There is a long road ahead but we are on the way and we are on the right track,” Voll said

Garry Marr, Financial Post 

The Canadian housing market’s surprising turnaround is spreading to new home construction as developers scramble to respond to a supply shortage that has sent pricing soaring for existing homes.

But any increase in construction on the new home side will likely not surface fast enough to feed the demand for housing that continues to be spurred on by record low interest rates.

Canada Mortgage and Housing Corp. said Monday there were 157,300 units constructed last month on a seasonally adjusted annualized basis, a 5.4% increase from a month earlier. Annualized starts at dropped as low as 118,500 in April.

“There is not a lot of inventory around,” said Gary Friend, president of the Canadian Home Builders’ Association, adding his industry has been careful not to speculate. “We have to watch our Ps and Qs, as we try to meet this demand.”

Any increase in supply would be welcomed as a shortage of new listings has lead to a spike in prices. The Canadian Real Estate Association said last month existing home prices across the country were up 13.6% in September from a year ago as a supply problem was evident in almost every city.

The shortage has yet to ease despite the suggestion higher prices would coax homeowners to sell. This month the Toronto Real Estate Board reported sale prices in October were up 20% from a year ago.

“The existing homes market is in short supply so we’ve gone from a buyer’s market to seller’s market. The way it gets linked is you get some spillover into the new homes market and that’s starting to happen,” said Bob Dugan, chief economist with CMHC.

The agency has already upped its forecast for new home construction for 2010 from 150,300 to 164,900. Even at that level though, construction is still well off the 211,000 new starts recorded in 2008.

Paul Ferley, assistant chief economist with the Royal Bank of Canada, said “at the margins” new home construction could help ease the housing crunch. “Builders are aware and will contribute where they can to advance construction activity but no they can’t turn on a dime.”

By Julian Beltrame        OTTAWA — Canada’s business leaders are turning bullish about the economy after a year of doom and gloom, a new survey suggests.

The Conference Board of Canada’s fall business confidence survey finds corporate leaders believe the recession is finally over and that the economy will rebound in the next six months.

The mood of confidence is particularly strong considering that recent indicators, particularly gross domestic product data for July and August, were disappointing.

Yet 63 per cent of business leaders surveyed said they expect the economy to improve over the next half-year, as opposed to only seven per cent who thought it will deteriorate.

Significantly, about a year ago the responses were almost exactly reversed.

The 16-point surge in the fall survey brought the confidence index to 97.8, the highest level since 2007.

The survey of about 2,000 representative firms from across the country was conducted between Sept. 14 and Oct. 22.

“After a year of despondency, Canadian business leaders are sensing an end to the deepest recession in a generation,” the Conference Board said about the results.

“Respondents appear very encouraged by signs of nascent recovery. More than half the respondents believe the present is a good time to expand their stock of machinery and equipment.”

Despite the apparent optimism, business still said they were concerned about under-utilization in their production levels, with 29 per cent describing their operations as substantially below capacity.

As well, leaders said they were concerned about the impact a strong dollar will have on their sales, the still weak demand, and about the ease of obtaining financing.

But it is in the forward indicators that business leaders were decidedly optimistic.

Almost 61 per cent said they expected their financial position to improve in the next six months, and more than half expect better profitability.

As well, more than half said it was a good time to expand, with 16 per cent saying they expected to increase their level of capital spending by more than 20 per cent in the next six months.

The Conference Board’s survey is roughly in line with results obtained by the Bank of Canada in September. The central bank’s survey of businesses showed 69 per cent of large firms optimistic their sales would increase in the coming year, and 42 per cent saying they expected to shift to hiring.

The Canadian Press

Fed creates ‘sweet spot’ for markets

Paul Vieira, Financial Post  – Equity markets, which have been on the ropes as of late, might have been given a second wind Wednesday as the U.S. Federal Reserve declared its easy-money strategy was here to stay for the foreseeable future.

“What the Fed has done is create a sweet spot for the equity market,” said Andrew Pyle, wealth advisor and markets commentator at ScotiaMcLeod. “What has happened to date can continue in an environment where rates are not going to be pushed up. It has given the equity market a lot more room to play with.”

Stock markets in Canada and the United States ended up with small gains following the release of the Fed statement, which acknowledged improvements in the U.S. economy such as an expansion in consumer spending and stable financial markets. But it reiterated that record low interest rates would remain in place for an extended period, as inflation expectations are expected to remain subdued “for some time.”

As a result, market players can continue to borrow short-term cash at very low rates to invest in higher-yielding assets. Low rates are also likely to be a boost to future corporate earnings, as borrowing costs remain cheap.

Keith Summers, chief investment officer and portfolio manager for Tricoastal Capital Management Ltd., said the Fed statement has removed the risk of a significant market correction.

“The result of what they are saying, which is easy money is here for the foreseeable future, is going to reassure people that the market is not going to be abandoned to its own devices,” Mr. Summers said. “Because of that there will be a bias toward buying as opposed to selling.”

Benchmark indexes in Toronto and New York have surged more than 50% from 52-week lows hit in March, as investors bet on an economic recovery. In recent weeks market indexes have shed some of the gains, as investors engaged in profit-taking on the belief that the market has fully priced in the recovery story.

The Fed statement offered some guidance as to when it might begin raising rates. In the only significant change from previous statements, the U.S. central bank said its record-low rate policy would continue due to “low rates of resource utilization, subdued inflation trends, and stable inflation expectations.” Should those elements change, then all bets are off, analysts said.

“This appears to spell out the Fed’s criteria for beginning rate normalization,” Michael Woolfolk, senior currency strategist at Bank of New York Mellon, said. “While the language was subtle, the clear message is to keep inflationary concerns to a minimum and to curb talk of higher rates.”

But analysts such as Mr. Pyle said the guidelines provided are somewhat vague because they don’t indicate, for example, how much slack has to be removed from the economy before a rate hike is warranted. In contrast, the Bank of Canada said it is prepared to keep its key benchmark rate at the record-low level of 0.25% until June 2010, conditional on inflation remaining subdued.

“The longer you keep this low interest-rate environment going, the greater the shock will be for households, businesses and investors when someone is forced to change the environment. We are setting ourselves up for a huge risk,” he said.

One factor that could force the Fed to move is further deterioration in the U.S. dollar, Mr. Pyle added. The U.S. dollar lost ground following the Fed decision, on improved risk appetite. Mr. Woolfolk said the U.S. dollar could lose further ground against major currencies, such as the euro, unless job data due out on Friday is worse than expected.

Alia McMullen, Financial Post 
Gold soared to a record high Tuesday after India surprised the market with the biggest single purchase of the commodity by a central bank in the past 30 years — a signal governments around the world are becoming increasingly uncomfortable about the sliding value of the U.S. dollar.

“It’s certainly indicative that the monetary authorities in India are not overwhelmingly upbeat about the outlook for the U.S. dollar,” said Erik Nilsson, senior international economist at Scotia Capital. “Bear in mind too that we’re talking about a jurisdiction that has had a long standing love affair with gold.”

Mr. Nilsson said India had increased its gold reserves to hedge against its U.S.-dollar holdings, which total about US$268.4-billion.

He said the increasing demand for gold as a hedge against the greenback was helping to set the stage for an alternative reserve currency or asset to the U.S. dollar, a proposal that has been trumpeted by countries such as China, France, India and Russia. However, any such change would not come quickly, Mr. Nilsson said.

The cost of an ounce of gold rose US$30.90 Tuesday to hit a record US$1,084.90 after it was announced the Reserve Bank of India had purchased 200 tonnes of the precious metal from the International Monetary Fund.

The IMF said the purchases were made in installments between Oct. 19 and Oct. 30 for a total value of US$6.7-billion.

Timothy Green, author of The Ages of Gold, said it was “the biggest single central-bank purchase that we know about for at least 30 years.”

Indeed, the purchase amounts to almost half of the 403.3 tonnes that the IMF approved for sale in September to diversify its sources of funding. The IMF owns more than 3,000 tonnes of gold.

Bart Melek, global commodities analyst at BMO Capital Markets, said the Reserve Bank of India’s gold purchase pushed the country’s gold reserves up to 7.1% of its total reserve assets. He said other countries, including China and Russia, have also been buying more gold, a trend that would likely continue while the U.S. economy remained volatile. On average, countries hold about 12.6% of their reserves in gold, up from 9.9% a year ago. Some of this represents an increase in gold holdings, but another driver of the increased proportion is the rise in the value of gold.

The price of gold has surged 52% since bottoming on Nov. 12 last year.

“Historically, gold has been a hedge against instability, has been a hedge against inflation, has been known to behave counter cyclically to equity markets,” Mr. Melek said. “Gold has reasserted its historic role of being a hedge, basically insurance against bad stuff, against everything from geopolitical problems to inflation to dollar issues.”

He said in the bullish case, gold could continue to push higher to average US$1,300 on an annual basis by the end of 2010 or early 2011.

Brian Christie, analyst at Desjardins Securities, said central-bank demand would be an important driver of the gold price, with India’s purchase adding to the positive momentum for the commodity.

“China is rumoured to be interested in some or all of the remaining IMF bullion; however, it is likely very sensitive to price,” Mr. Christie said. “Since the transaction with India was done at fair market value, the Chinese could be waiting for a pullback in the gold spot before pursuing this purchase further.”

With holdings of US$2.3-trillion, China is the largest holder of U.S.-dollar reserves and has been actively looking to diversify its portfolio.

The Canadian Press

OTTAWA — The national housing agency is reporting that housing starts have started to recover and it expects the recovery to continue.

Canada Mortgage and Housing Corp. predicts starts will reach 141,900 this year and increase to 164,900 in 2010.

The CMHC’s fourth-quarter market outlook forecasts housing markets will continue to strengthen over the next year as economic conditions improve.

It says demand for existing homes has rebounded and both new and existing home markets are characterized by lower inventory levels.

However, the national housing agency says the strong pace of sales in the second and third quarters partly reflects delayed activity and is not likely to be sustained.

The CMHC says it expects the level of sales to move back closer in line with anticipated economic conditions.

It predicts existing home sales will reach 441,300 units in 2009 and increase to 445,150 units in 2010, while the average price is expected to be $312,950 in 2009 and $324,500 in 2010.