Housing, crude revival lift Canada’s economic hopes

Bloomberg

Canada consumer optimism ended 2016 with a small weekly increase, finishing above where it started the year on rising expectations for the country’s growth prospects.
The sluggish economy, hampered by disappointing exports was a focal point for policymakers in Prime Minister Justin Trudeau’s first full year in power. Trudeau expanded transfer payments and cut middle-income taxes, while Bank of Canada governor Stephen Poloz held interest rates steady amid divergence with the US Federal Reserve.
Weekly telephone polling for the Bloomberg Nanos Canadian Confidence Index reveals a recovery of economic expectations in the Prairies, the heart of the country’s energy sector, and a housing outlook that remains buoyant even after governments imposed regulatory measures to cool growth in the hottest markets, Vancouver and Toronto. Crude rose almost 50 percent over the year while the S&P/TSX Composite Index returned 18 percent, each of them reaching their 2016 high last week. It spells optimism for Canada, amid some warning signs.
“There were reasons for the various segments of consumers to become more optimistic at the end of the year,” Bloomberg economist Robert Lawrie said. “There is the prospect of a transition to an innovation-based economy. Still to be considered, however, is the persistent slack in the labor market and formulation of policies for those that might be left behind during that transition.”

CLOSING GAP
The index closed the year at 56.8, up from 56.7 a week earlier and its fourth consecutive increase. That left it up from 53.8 a year earlier, with almost all the change driven by a sub-index measuring housing prices and expectations for the economy. The other sub-index, gauging personal finance and job security, was little changed on the year.
Canada saw the gap narrow between a larger group expecting the country’s economy to shrink, and a smaller group who think it will improve. The former outnumbered the latter by 4 percentage points at the end of 2016, compared to 17.5 percentage points at the start of the year.
The share of those expecting Canada’s economy to strengthen over the next six months finished the year at 24.7 percent, up from 20.5 percent. The share of those expecting contraction finished at 28.7 percent, down from 38 at the start of the year.

DIFFERENT STROKES
As monetary policy diverged between Canada and the US, so too did housing policy among governments overseeing Canada’s two top markets. In British Columbia, lawmakers introduced a tax on foreign buyers that has seen sales volumes in Vancouver decline. In Toronto, officials opposed such a measure and instead announced new subsidies for first-time buyers — a move subsequently taken by British Columbia as well.
All told, expectations among Canadians for housing prices improved in 2016. The share of those who now expect real estate values to increase in their neighborhood in next six months finished at 36.6%, from 30.6% at the start of the year. Only 15.2% of Canadians now expect prices to decline, down from 19.2% at the start of the year.
Four of the country’s five regions saw consumer confidence rise in 2016, with the exception being British Columbia, where sentiment fell to 57.8 from 59.9 a year earlier. The biggest increases were seen in the energy-producing Prairie provinces, where the index score rose 5.9 points over the year, though remains the lowest of the regions at 50.9.
Nationally, perceptions of job security and personal finances were little changed. At both the start and end of 2016, roughly two-thirds of the country reported their job is at least somewhat secure. The share of those saying their finances have improved in the past year fell slightly to 16.2 percent, from 18.7 percent at the start of 2016.
Trudeau’s economic policies are aimed largely at personal finances. He expended benefit payments for families with children, including a phase-out of child benefit payments for higher-earning families. He cut income taxes for those earning between C$45,000 ($33,500) and C$90,000 and created a new, higher bracket for incomes above C$200,000.