Skip to main content

Deficit, Growth and the Canadian dollar

Demand for Canadian assets by foreign investors continues to grow at an almost uncomfortable level, account for more 8% of GDP today.  One reason is that the Canadian federal deficit for the current year is anticipated to be around 2% of GDP (slow down Nelly it sounds better than reality!).  The issue is that in Canada, the provinces account for a substantial portion of total government activity.  In fact, at a Federal level, Canada’s government should be generating a surplus, since the economy is “humming along”. 


Late last week, the Ontario government (Canada’s largest province by population, wealth and GDP), gave an update on the state of the nation.  Certain surprising facts:

  • Deficit is anticipated to be $1 billion lower at $18.7 billion (or 3.1% of the GDP), the reason – revenues are higher ($750) and costs were lower ($250).
  • Ontario has revised its growth forecast to 3.2% from 2.7% as a result of the better level of economic activity – tax receipt are an undisputable proof of higher economic activity.
  • The one negative aspect Ontario has reduced its forecast GDP growth for the next two year by one percent, taking the 2011/12 number from 3.2% to 2.2%.

National Bank of Canada had a very interesting (although slightly flawed) analysis indicating that the Canadian dollar still has lot of room to maneuver since it has appreciated a lot less than the Kiwi or Ausi dollars!  Although this is correct, neither of these countries export a great deal to the U.S.  – their target market is Asia in general and China specifically, which changes the equation slightly, whereas the U.S. is Canada’s largest trading partner, accounting for 70% of our exports. The implication of Canada's exposure to the U.S., is that it is there that Canada's competitive pressures exist, for Australia and New Zealand it is elsewhere. 

If what is occurring in Ontario is also true for Quebec (Quebec’s economy is doing better than Ontario, with better tax revenues, and possibly lower expenditures.  Although the public unions are looking to extract their pound of flesh with high wages and salaries.

No wonder foreigners are attracted to Canada's sovereign bonds, the place looks reasonable compared to the rest of the OECD.  although my historical standards, Canada's fiscal shape is not that great, but for investors its not absolute that count, but relative performance.  On that scale, Canada is the place to be.

Popular posts from this blog

Ok so I lied...a little (revised)

When we began looking at farming in 2013/14 as something we both wanted to do as a "second career" we invested time and money to understand what sector of farming was profitable.  A few things emerged, First, high-quality, source-proven, organic farm products consistently have much higher profit margins.  Secondly, transformation accounted for nearly 80% of total profits, and production and distribution accounted for 20% of profits: Farmers and retailers have low profit margins and the middle bits make all the money. A profitable farm operation needs to be involved in the transformation of its produce.  The low-hanging fruits: cheese and butter.  Milk, generates a profit margin of 5% to 8%, depending on milk quality.  Transformed into cheese and butter, and the profit margin rises to 40% (Taking into account all costs).  Second:  20% of a steer carcass is ground beef quality.  The price is low, because (a) a high percentage of the carcass, and (b) ground beef requires process
Post a Comment
Read more

21st century milk parlour

When we first looked at building our farm in 2018, we made a few money-saving decisions, the most important is that we purchased our milk herd from a retiring farmer and we also purchased his milking parlour equipment.  It was the right decision at the time.  The equipment dates from around 2004/05 and was perfectly serviceable, our installers replaced some tubing but otherwise, the milking parlour was in good shape.  It is a mature technology. Now, we are building a brand new milk parlour because our milking cows are moving from the old farm to the new farm.  So we are looking at brand new equipment this time because, after 20 years of daily service, the old cattle parlour's systems need to be replaced.  Fear not it will not be destroyed instead good chunks will end up on Facebook's marketplace and be sold to other farmers for spare parts or expansion of their current systems. All our cattle are chipped, nothing unusual there, we have sensors throughout the farm, and our milki
Post a Comment
Read more

So we sold surplus electricity one time last summer...(Update)

I guess that we will be buying an additional tank for our methane after all.   Over the past few months, we've had several electricity utilities/distributors which operate in our region come to the farm to "inspect our power plant facilities, to ensure they conform to their requirements".  This is entirely my fault.  Last summer we were accumulating too much methane for our tankage capacity, and so instead of selling the excess gas, that would have cost us some money, we (and I mean me) decided to produce excess electricity and sell it to the grid.  Because of all the rules and regulations, we had to specify our overall capacity and timing for the sale of electricity (our capacity is almost 200 Kw) which is a lot but more importantly, it's available 24/7, because it's gas powered.  It should be noted that the two generators are large because we burn methane and smaller generators are difficult to adapt to burn unconventional gas, plus they are advanced and can &qu
Post a Comment
Read more