Monday, October 31, 2011

Canadian GDP rise 0.3% in August

This is a case of good headline, but dig a little and the news is not so great, mainly because Energy accounts for 100% of the GDP growth in August.  It was also a dominant component in July (not so much in June).  The reality is that manufacturing is down, but building is up a little.

However, the overall news is that Canada's economy is essentially operating at stall speed in July and August.  Not a huge surprise as employment and income have both lagged (again the headline was great, but the underlying data was So So).

On the interest rate front, there is no pressure for Canadian interest to go anywhere (either up or down) the futures curve is virtually flat.  There is little reason to lower rates, since the problem is external demand, and there is little reason to raise rates -- again because inflation is external -- mostly energy prices and commodities.  The BoC stands aside.

The big news is that the Federal government has decided to remain on path to reduce expenditure -- as they had promised in the May elections.  The ideal situation is one where the government reduces its deficit the zero; still its objective for 2014/15 fiscal year.

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