“We were already on a slippery slope coming into COVID,” he said in a recent interview with National Post.
Ahead of the 2008 financial crisis, Canada’s exports exceeded imports by a “healthy” margin of three to five per cent, Dodge said in the PPF report. That has since been flipped over for an annual average deficit of negative two to three per cent.
And while annual current account deficits don’t spell trouble for a country, a chronic shortfall can spell trouble as governments continue to draw from the public purse to pay for costly social programs like childcare, expanded unemployment insurance, and healthcare for a rapidly aging population.
“This is not a very sustainable situation,” Dodge said. “You can sustain it for a while, but we know that over time the situation deteriorates as service costs on foreign debts build over time.”
The problem isn’t specific to making up for natural resources outputs, which still contributed a staggering $76.6 billion to the current account in 2019 — about 80 per cent of which came from crude oil and bitumen production. Exports in the automotive and aerospace sectors have continued to decline over the years, while consumption for autos or travel services have increased.
From the beginning of the financial recession until the end of 2019, Canadian investments in assets abroad outweighed foreign direct investments by $804 billion, Dodge said in the report.
Observers are divided over how to address the continued shortfall. Many say the next generation of export-based industries will be in leading-edge products like artificial intelligence, financial tech or electric vehicles, to name a few.
There’s a race. There’s a new currency, so to speak. It’s technology
Suzanne Grant, Canadian Advanced Technology Alliance
Restaurants and retailers come and go even in good times. Tech companies were driving employment growth before the crisis, and they will determine the speed of the recovery as the economy continues to go digital and governments and corporations heavily spend on replacements for carbon-based energy. At least that’s how Germany sees it.
Morneau, though, has struggled to satisfy technology firms, which have been regularly disappointed by having to meet criteria for aid that too often are designed for the way things were done in the old economy, not the new one.
“It’s good, but I don’t think it’s good enough,” Grant said of the government’s efforts to shield smaller technology companies. “I don’t think we are valuing what they can do for our future. The world is shifting and it’s competitive. There’s a race. There’s a new currency, so to speak. It’s technology.”
Canada’s six biggest banks survived a severe stress test by the Bank of Canada, which is a relief since they might be the only thing standing between a relatively short recession and something much worse.
The analysis was part of the central bank’s latest Financial System Review (FSR), which is devoted to the COVID-19 crisis.
Generally speaking, the central bank appears confident that its historic response to the shutdown of vast swaths of the global economy has averted disaster. Governor Stephen Poloz stuck to his contention that the recession will be brutal, but probably relatively short, in part because there appears to be little reason to worry about a financial meltdown.
The pandemic remains a massive economic and financial challenge, possibly the largest of our lifetimes, and it will leave higher levels of debt in its wake
Bank of Canada Governor Stephen Poloz
“The country’s banking system and financial market infrastructures are strong enough to deal with the situation,” Poloz said before taking questions on a conference call with reporters. “To be clear, the pandemic remains a massive economic and financial challenge, possibly the largest of our lifetimes, and it will leave higher levels of debt in its wake.”
Still, thanks to decent economic growth during the past few years and the hundreds of billions of dollars in emergency funds that Ottawa is pushing into the economy, the governor said he was “confident that a strong financial system will help Canada emerge from this episode in relatively good shape.”
Unlike many of its peers, Canada’s central bank doesn’t have any regulatory authority over financial institutions. But it does have moral authority, and it wields the country’s most impressive array of economic researchers. Thus, the FSR is an important instrument of policy, since central bankers use it to try to guide behaviour, just as they attempt to steer spending habits by raising and lowering interest rates.
Normally, the annual FSR is a warning mechanism. The Bank of Canada flags vulnerabilities it thinks could lead to pain in the event of a shock. Since we’re currently living through such a shock, this year’s review was more of a “state of play,” as Toronto-Dominion Bank economist Brian DePratto observed. “Vulnerabilities abound, but on balance the bank appears to be cautiously optimistic that the system can handle the current and emerging stresses,” he said in a note to his clients.
The Big Six and the hefty cash reserves they must maintain to satisfy federal regulations are a firebreak in this crisis
Policy-makers are confident that they have avoided a credit crunch, albeit only because they took the unprecedented step of creating tens of billions of dollars to buy government bonds and company debt. The policy seems to be working, since interest rates, which spiked in March as investors retreated when the coronavirus spread through Europe and North America, have returned to pre-crisis levels.
Poloz and the central bank’s other leaders are probably less sure about how many companies and households will survive the recession without declaring bankruptcy.
The central bank reckons about twenty per cent of mortgage borrowers entered the downturn with only enough cash and other liquid assets to cover two months (or less) of loan payments. Many companies are equally fragile, as some of the industries hardest hit by the crisis are also the ones in which companies were already operating with relatively little money in the bank.
“COVID‑19 has hit many households and businesses hard, especially those that are highly indebted or have low cash buffers,” the FSR said. “During this period, emergency measures that provide basic incomes to households and help businesses access credit are crucial.”
Government rescue efforts now exceed 10 per cent of gross domestic product, more than double the value of the fiscal stimulus deployed during the Great Recession a decade ago. Much of the assistance is in the form of emergency loans, and most of that funding is being administered by the biggest banks.
Canada’s banking oligopoly constrains competition and innovation in good times. But the Big Six and the hefty cash reserves they must maintain to satisfy federal regulations are a firebreak in this crisis. Things would be much worse if the banks were as fragile as airlines and oil companies. Fortunately, the banks should be able to withstand a deterioration of current conditions.
Policy-makers ran a simulation of what would happen to the six biggest banks — Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank — if the Bank of Canada’s worst-case economic outlook came to pass.
That scenario, which the central bank acknowledges is plausible, involves a 30 per cent plunge in GDP in the second quarter from the end of 2019 and a slow recovery that would leave economic output below pre-crisis levels for more than two years.
It’s ugly, but the banks survived the test: arrears peaked at a rate that was about double the peak during the financial crisis, and non-performing loans would exceed recent highs. But monetary and fiscal policy counter much of the pain, and the banks’ reserves do the rest. Capital requirements remain above the level required by regulation, which was made tougher after the Great Recession precisely so the most important lenders would be ready for the next economic calamity.
“The six largest banks entered the COVID‑19 period with strong capital and liquidity buffers, a diversified asset base, the capacity to generate income and the protection of a robust mortgage insurance system,” the FSR said. “With these strengths, as well as the aggressive government policy response to the pandemic, the largest banks are in a good position to manage the consequences.”
Prime Minister Justin Trudeau says a recent vote to support a UN resolution endorsing Palestinian self-determination is not a shift in Canada’s policy against singling out Israel for criticism on the international stage.
Trudeau made the remarks Monday at a menorah lighting on Parliament Hill, where about 100 parliamentarians and members of the Jewish community gathered to mark the upcoming Jewish holiday of Hanukkah.
Protest turns violent during pro-Israel event at York University
For more than a decade, Canada has voted against the resolutions but Trudeau says Canada felt it had to change course on that one resolution, in order to emphasize its support for a two-state solution to the Israeli-Palestinian conflict.
“I hear you,” Trudeau told those gathered around the menorah. “I understand that many of you were alarmed by this decision. The government felt that it was important to reiterate its commitment to a two-states-for-two-peoples solution at a time when its prospects appear increasingly under threat.
“But let me be very clear. Our enduring friendship with Israel remains. We will continue to stand strongly against the singling out of Israel at the UN. Canada remains a steadfast supporter of Israel and Canada will always defend Israel’s right to live in security. And we will always, always, speak up against anti-Semitism at home and abroad. You have my word.”
Canada was roundly criticized for the November vote by Israel, the United States and many within Canada, with several critics accusing Canada of voting with the majority in order to secure a UN Security Council seat next year.
Canada returned to its practice of voting against other resolutions critical of Israel in votes taken this month.
U.S. no longer considers Israel settlements illegal
At the menorah lighting, Trudeau and Conservative Leader Andrew Scheer both denounced recent incidents of anti-Semitism aimed at Jewish students at York University, the University of Toronto and McGill University.
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“They were made to feel uncomfortable because of their identity, because of their support of Israel,” Trudeau said.
“Calling into question Israel’s right to exist or the right of Jewish people to self-determination is promoting anti-Semitism and that’s unacceptable. We will never, ever be silent in the face of such acts. Hatred has no place in Canada and we will continue to condemn it.”
OTTAWA — Outgoing governor Stephen Poloz once joked that, after being chosen to succeed Mark Carney as head of the Bank of Canada in 2013, he was received much like the guy who replaced Wayne Gretzky. That is to say: nobody actually remembers the guy who replaced The Great One.
Poloz was plucked from relative obscurity as head of Export Development Canada and, despite being on the shortlist of successors, was considerably less well-known compared to the high-profile Carney, who had engineered Canada’s response to the deepest recession in decades and made Time magazine’s 100 “most influential” list.
“I run into people in the street and they ask me, ‘how’s Mark?’” Poloz said in an April 2019 interview with Maclean’s. “And I’m like, ‘great… and I’m doing okay too.’”
But Poloz, who announced on Friday he would be stepping down from the role, has nonetheless made a name for himself over the last six years — even if he hasn’t reached rock-star status.
He became known for his honest communication style, delivered with a trademark folksiness and a penchant for metaphors (he once used a “spaghetti-sauce model” to describe monetary tapering after the recession of 2007-08, and compared exchange rate fluctuations to walking a dog on a leash).
He made a point of accounting for the pulse of the “real economy,” focusing on business investment and the sentiments of CEOs more than his predecessors. Most of all, he kept inflation largely within the bank’s target, even amid trade threats from U.S. President Donald Trump and a Canadian economy that, after years of tepid growth, suddenly caught fire in 2017.
It wasn’t always a smooth ride. He started his term amid some concerns that his connection to the EDC and exporters would make him partial to a lower Canadian dollar. Others were rankled by his communications style, which sometimes veered from the Bank of Canada’s official script. He gradually overcame those frustrations.
“I think he’s gained more respect over time in this role,” said Mark Chandler, head of Canadian rates strategy at RBC Capital Markets.
Poloz took over from Carney at a time when the country was climbing out of the deepest recession in decades. A prolonged period of low interest rates had pushed household debts to among the highest of any developed nation, leaving the governor tightly wedged between mediocre economic growth and fast-expanding consumer credit.
I think he’s gained more respect over time in this role
Mark Chandler, head of Canadian rates strategy at RBC Capital Markets
His first major test came when oil prices suddenly collapsed in mid-2014, sending the wider economy into a tailspin. Poloz shocked the market with a sudden rate cut in early 2015, followed by a second cut months later, reducing the overnight rate to 0.5 per cent. The move both solidified what proved to be a prescient move by Poloz, while also laying bare the limits of monetary policy in the current economy.
“He was a creature of his time,” Chandler said. “It’s something you can give him credit for — he acted quite quickly, and at a time when others maybe hadn’t recognized the impact of the oil shock.”
Poloz was born in Oshawa, Ont., and completed his economics degree at Queen’s University in Kingston. He received a master’s degree in economics in 1979 and a PhD in economics in 1982, both from the University of Western Ontario. He first joined the Bank of Canada in 1981, where he rose up through the ranks over a 14-year period.
Christopher Ragan, former special advisor to Bank of Canada governor David Dodge, said it was immediately evident to him that Poloz was on the fast track for the governor position when he first met him in the early 90s.
Poloz was heading the bank’s then-research arm at the time. The other potential successor Ragan had identified was Tiff Macklem, who would later become senior deputy governor at the bank.
“They just had the complete package of things that you want,” Ragan said. “They had the analytical power, they had the administrative savvy, they had the communication chops. It was clear as day to me.”
Macklem was seen by many analysts as a natural successor to Carney, a long-time Bank of Canada employee who seemed groomed for the job. The decision by then-finance minister Jim Flaherty to appoint Poloz was met with confusion by some.
In a 2013 interview with the Globe and Mail, former European Central Bank economist Thorsten Koeppl said there was “a lot of head scratching going on” after the appointment. Macklem stepped down from the bank shortly after the appointment, four years before the end of his term.
But Poloz gradually won the confidence of Bay Steet, in part through a communication style that, unlike his predecessor, would readily convey the unknowns and uncertainties in the bank’s economic models.
“It’s part of his ‘aw-shucks, we-don’t-know-everything-that-the-previous-guy-knew’ communication style,” Ragan said. “He probably trades on that a little bit, and that’s okay.”
“He would say, ‘there are things the bank doesn’t know, things that I as a governor don’t know, things that the economics profession doesn’t know.’ And I think that’s extremely healthy.”
Another of his trademarks was a stand against debt. Poloz was uncommonly outspoken about rising consumer debt levels across Canada, and often expressed his worries over a heated housing market.
“That’s something that’s reasonably different than what other governors have done in the past,” said Jean-François Perrault, chief economist at Scotiabank.
“Unfortunately, that also muddles a little bit the approach to monetary policy,” he added.
Some analysts have disagreed with Poloz’s decision to continue holding rates, especially in recent months when trade rifts between the U.S. and China kicked off a wave of cuts at central banks around the globe.
“Over the last few weeks one could make a very good case that there was a need for lower interest rates in Canada to guard against risks,” Perrault said.
Scotiabank had predicted the bank would cut rates in October or December.
The wisdom of Poloz’s move remains to be seen, particularly with Canada’s current interest rate of 1.75 per cent being the highest among advanced economies.
Meanwhile, consumer debts have continued to rise. Canada’s household debt in 2018 averaged 181 per cent of total income, well higher than the United States (109 per cent), Germany (95 per cent), and others, according to the Organisation for Economic Co-operation and Development.
That could be among his more unfortunate legacies at the bank, RBC’s Chandler said. Concerns about household debts had already begun to surface when Poloz took over from his predecessor, when the Canadian economy was taking its long, slow climb back to health.
“Seven and a half years later, debt levels are even higher,” Chandler said. “So if that legacy was a question mark for Carney, it’s even more so under Poloz.”
Dan Bilefsky, my colleague who is based in his hometown, Montreal, looked into a existential threat that has united, sort of, two of the city’s greatest rivals: Fairmount Bagel and St-Viateur Bagel.
The threat is the prospect that the city might ban the wood-burning ovens that are a key component of what makes Montreal bagels, at least to their proponents, the world champions of bagels. Those of you who are unfamiliar with Montreal bagels can learn about what distinguishes them from other bagels, the St-Viateur-Fairmount rivalry and the debate over which shop’s doughy circles are the finest by reading Dan’s entertaining story.
But I have to share one quotation from the article to give you a sense of the limits of the current collaboration between the shops:
“His bagels went to the moon, yeah, sure,” the owner of St-Viateur said of his competitor’s shop. “But the oldest? Give me one iota of proof!”
Montreal bagels are just one of many foods associated with a city, province or region. Of course, Montreal and Quebec can also add smoked meat, steamies, sugar pie and poutine to their lists.
Some local favorites have made their way across the country. Montreal-style bagels are pulled out of a wood-burning oven 24 hours a day just a few blocks from my house in Ottawa. And a couple of weeks ago when I was out running in Calgary, I passed a shop with signs boasting about its similarly authentic Montreal bagels.
But many other food oddities remain stubbornly local.
Here, by city or province, is my unquestionably incomplete list of regional dishes.
Many delights from The Rock also rely on the fishery, like fried cod tongues (not actually tongues) and scrunchions (fried salt pork). But Newfoundlanders have also developed a whole school of cooking around waxed bologna, or “the big stick.”
Prince Edward Island: Islanders, please help me out. There appears to be no end to various fish, potato and lobster dishes, but none appear to be obviously of P.E.I. Perhaps potato fish cakes fit the bill, but their popularity and place in its cooking history are unclear.
Thunder Bay, Ontario: Bisected by both transcontinental train lines and the Trans-Canada Highway, and also the last port on the Great Lakes, Thunder Bay attracted immigrants from around the world who brought their cooking with them. They included my maternal grandfather, Mike Holavec. Originally from Ukraine, he came to Thunder Bay from Manitoba to work as a logger.
Two dishes have emerged from that history. First the dense, egg-rich Finnish pancake. As I wrote in 2015, it really isn’t from Finland but is most likely a variation of something that was served to my grandfather in lumber camps.
It is on the menu at several places around town, but Finnish pancakes are most closely associated with the Hoito, a Finnish restaurant that started as a cooperative catering to lumberjacks.
Thunder Bay’s other contribution to Canadian cooking is the Persian, an oddly named variation of the cinnamon bun topped with lurid pink icing.
Winnipeg has at least two dessert obsessions. Imperial cookies are two vanilla biscuits, joined by jam and topped with icing. As with Montreal’s bagels, there are varying opinions about which Winnipeg bakery makes the best ones.
Shmoo, or Schmoo, is Winnipeg’s tall torte based on angel food cake, layered up with whipped cream, caramel and pecans.
Saskatchewan: Even in a Canada that is increasingly divided by region, we can all probably agree that anything made using Saskatoon berries is a treat.
While it’s not really a dish, I’ve been in restaurants in Saskatchewan, as well as in Alberta, that offer pirogi as a breakfast side-order option.
Lethbridge, Alberta: This one may be more of a food obituary. The Crazy Cakes Bakery claimed to be the last shop in Canada still producing spudnuts: doughnuts made with potato flour. But about a month ago, it shut down.
Vancouver: The city of sushi is the home of the B.C. roll, which contains barbecue salmon skin and a sweet sauce or mayonnaise.
Of course, a short ferry trip from Vancouver can take visitors to Nanaimo, British Columbia, home of that no-bake, namesake wonder dessert, the Nanaimo bar. In the interest of not offending anyone from that city, I will not go into the old joke about what’s in a Nanaimo bar.
As mentioned, this list is woefully incomplete. Neither I nor several friends or relatives could come up with anything specifically associated with Toronto, for example, despite the city’s proliferation of restaurants.
So please fill me in on what’s missing from your community: [email protected] We’re looking only for dishes that are found in restaurants and home kitchens, not regional commercial snack foods. This newsletter has already explored that topic as well as your thoughts on it.
Similarly, we probably don’t want to get into ethnic foods that are popular in your town or city but not unique to it. Please include your full name and where you live. We may use the some of the replies in an upcoming newsletter.