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Bank of Canada holds interest rate at 1.75%; keeps eye on oil slump, investment

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OTTAWA — The Bank of Canada is leaving its interest rate unchanged and says the timing of future hikes will depend on factors such as how long the oil-price slump lasts, how well business investment picks up its …


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  • OTTAWA — The Bank of Canada is leaving its interest rate unchanged and says the timing of future hikes will depend on factors such as how long the oil-price slump lasts, how well business investment picks up its pace and how much room the economy still has left to grow.

    The central bank’s move Wednesday maintains its trend-setting rate at 1.75 per cent. The decision follows the quarter-point increase at the bank’s previous policy meeting in October.

    Thanks to the strengthened economy, the bank has been on a gradual rate-hiking path for more than a year and has already raised the benchmark five times since the summer of 2017.

    The central bank raises the interest rate to prevent inflation from climbing too high. Heading into Wednesday’s announcement, many market watchers had expected governor Stephen Poloz to wait until at least January before his next rate increase.

    More hikes are on the way, but the bank said the timing of its next one will hinge on changes in global trade policies as well as how higher interest rates from past increases affect consumption and housing.

    The bank also underlined several recent economic developments that it will now take into account.

    “The persistence of the oil-price shock, the evolution of business investment and the bank’s assessment of the economy’s capacity will also factor importantly into our decisions about the future stance of monetary policy,” the bank said Wednesday in a statement.

    On oil, the central bank blamed the steep slide in prices on the combination of geopolitical developments, uncertainty about the outlook for global growth and the expansion of American shale oil production. The price of western Canadian oil, the bank added, has fallen further than other benchmarks because of transportation constraints that have led to production cuts.

    “Activity in Canada’s energy sector will likely be materially weaker than expected,” the statement said.

    Recent data, the bank noted, also show the economy has less momentum heading into the final quarter of 2018. It says it’s related to factors such as a drop in business investment that it largely connects to significant uncertainty around trade last summer.

    The bank expects corporate investment to improve — outside the energy sector — following last week’s signing of the updated North American trade agreement, new federal tax incentives and ongoing pressure from rising demand.

    It will also be watching for positive developments such as more signs the economy can still expand without stoking inflation. The bank pointed to recent downward revisions to gross domestic product data that suggested there’s still some space for non-inflationary growth.

    The bank, which tries to keep inflation within its target band of one to three per cent, noted that October’s inflation reading of 2.4 per cent was above its ideal two per cent bull’s-eye. However, due to weaker gasoline prices, it is now predicting inflation to move down in the coming months by more than its previous forecast.

    The Bank of Canada has estimated it will no longer need to increase the interest rate once it reaches a level of between 2.5 and 3.5 per cent, but Poloz has said this destination range remains “sufficiently uncertain” and could move up or down.

    Andy Blatchford, The Canadian Press






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    GM, Unifor announce investment in Oshawa plant that will save 300 jobs

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    TORONTO — The union representing Canadian auto workers claimed a partial victory Tuesday after General Motors Canada announced an Oshawa, Ont., plant slated to close later this year will be converted to a part-stamping and autonomou…


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  • TORONTO — The union representing Canadian auto workers claimed a partial victory Tuesday after General Motors Canada announced an Oshawa, Ont., plant slated to close later this year will be converted to a part-stamping and autonomous vehicle testing facility.

    Unifor and GM Canada said the transition will cost $170 million and save 300 of the 2,600 union jobs at the plant, with the potential to attract more jobs as the facility attracts new customers.

    GM Canada president Travis Hester, who announced the so-called “Transformation Agreement” alongside Unifor national president Jerry Dias, said the Oshawa site will still end vehicle production at the end of 2019.

    However, 22 hectares of the facility will be converted into a test track for autonomous and other advanced vehicles, which Hester said will help expand the nearby Canadian Technical Centre.

    “I want to send a strong and positive message from GM to the people of Oshawa,” he said. “With our Canadian headquarters, our sales and marketing organization, the OnStar support centre, the Oshawa engineering centre, and the new announcements just mentioned here, GM plans to be one of Oshawa’s leading companies and employers for many decades to come.”

    Dias, whose union suspended a media campaign against GM in March amid what it called productive talks with the automaker, called the agreement “innovative” but admitted it was far from a perfect solution.

    “What I do know is you play the cards you’re dealt and you make the best out of a bad situation,” he said. “I will suggest that instead of us facing a hard closure in December of this year … we have an understanding between the parties of a long-term commitment.”

    Dias said the agreement will help keep the company in Oshawa over the next decade.

    “This announcement, though it may not have a lot of jobs as we sit here today in May, there’s going to be a heck of a lot more in December,” he said. “There’ll be more next year. There’ll be more the year after as we continue to attract work.”

    A joint statement from GM Canada and Unifor said the company will offer relocations to other facilities in Ontario for those affected, as well as “enhanced retirement packages” to 1,300 eligible employees.

    Industry observers said the automaker’s decision to repurpose the Oshawa plant could mark a turning point for the auto sector in Canada.

    “GM has a real strong R&D centre in Oshawa and another one in Markham working on autonomous and electric vehicle issues,” said auto industry analyst Dennis Desrosiers. “Putting a test track in gives those jobs more security … but also potentially a real possibility of more jobs on the intellectual side of the industry.”

    Federal Economic Development Minister Navdeep Bains said the government is encouraged by the announcement.

    “Just yesterday, Oshawa’s autoworkers were facing a completely uncertain future,” he said in a statement. “Today, GM has committed to providing work for hundreds of them at the plant and to supporting the others, and we want to see it through.”

    Ontario Economic Development Minister Todd Smith said in a statement that the province welcomes the agreement, calling it good news for the City of Oshawa and the surrounding region.

    “We are glad this historic site will continue to be a hub for vehicle parts manufacturing, technological innovation and regional economic growth,” Smith said.

    However, he acknowledged that many workers still face an “uncertain future,” saying the government is working with Unifor and GM to support affected employees and their families.

    Christo Aivalis, a labour relations expert at the University of Toronto, said the deal is a victory for the union, which launched a months-long public relations campaign against GM.

    “I think Unifor was able to tap into a sense that these are good jobs for Canadian workers and GM has, for a long time, had a lot of loyalty from Canadian consumers,” he said. “Maybe (GM) saw real pressure from Unifor and that trickled down into the general public and they felt that there was real risk that a total closure would cause real brand damage.”

    Adam Burns and Shawn Jeffords, The Canadian Press





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    New U.S. trade report predicts modest economic gains from new NAFTA

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    OTTAWA — With Washington riveted to the Mueller report, a comprehensive economic assessment of the new North American free trade deal quietly emerged Thursday, predicting less-than-stellar economic gains for the United States.
    Moreover, the m…


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  • OTTAWA — With Washington riveted to the Mueller report, a comprehensive economic assessment of the new North American free trade deal quietly emerged Thursday, predicting less-than-stellar economic gains for the United States.

    Moreover, the much anticipated report of the U.S. International Trade Commission undercut the Trump administration’s rationale for forcing a renegotiation of the North American Free Trade Agreement, said one leading Canadian trade lawyer. 

    The new report arrived in the face of rising doubts in some quarters about the real impact of the U.S.-Mexico-Canada Agreement, or USMCA, and with political roadblocks to ratification piling up in all three countries. The trade commission tome — all 379 pages of it — landed Thursday after being delayed months by the 35-day shutdown of the American federal government.

    Its findings are significant because it is widely viewed as a neutral body that can provide a sober assessment of the economic merits of the new deal, which faces growing opposition — primarily from Democrats who want to deny Trump a political victory on a trade deal he sees as positive.

    The commission predicted modest economic growth in the U.S. as a result of the agreement — a 0.35 per cent increase in gross domestic product and 176,000 new jobs, an increase of just 0.12 per cent.

    “That’s it? All this time and all this headache, and the disruption to the North American supply chain and to the companies for the sake of 176,000 jobs?” said Cyndee Todgham Cherniak, a Toronto-based international trade lawyer.

    The report also predicted that U.S. exports to Canada would increase by $19.1 billion, and that U.S. imports from Canada would also increase by the exact amount — $19.1 billion.

    Todgham Cherniak said the identical figures debunk the American raison d’etre for renegotiating NAFTA — that the U.S. was suffering under an unfair trade deficit that needed correcting.

    “The trade deficit issue is completely neutralized.”

    That figure was not lost on Foreign Affairs Minister Chrystia Freeland, who railed repeatedly in the long NAFTA talks against the U.S. argument that it was facing a trade deficit.

    “According to that main U.S. report, what they’re saying is the new NAFTA benefits both countries … I think that is a classic win-win outcome,” she told reporters at the Algoma Steel plant in Sault Ste. Marie, where she continued to decry “illegal” U.S. tariffs on Canadian steel and aluminum.

    In the crucial auto sector, the assessment was positive but with one caveat: it might make autos more expensive for consumers because of new content rules that would prevent the use of cheaper, foreign parts — something Trump has railed against as being a job killer in the U.S.

    The complicated content formula for what constitutes a North American-made auto — known as rules of origin — and updated labour provisions aimed at Mexico were key issues in the contentious NAFTA renegotiation.

    The new deal “would strengthen and add complexity to the rules of origin requirements in the automotive sector by increasing regional value content (RVC) requirements and adding other requirements.”

    It would increase the production of automotive parts and create new jobs, but also “lead to a small increase in the prices and small decrease in the consumption of vehicles in the United States.”

    Dan Ujczo, a trade lawyer and Canada-U.S. specialist in Columbus, Ohio, said the analysis confirms that the U.S. is never going to get a better deal with Canada and Mexico than the current agreement. But he suggested it’s all probably moot given the wider political turmoil unleashed by the Mueller report, which examines whether the Trump campaign colluded with Russia to meddle in the 2016 presidential election.

    “Unfortunately, today’s other report is going to consume Washington for the remainder of the spring and likely stall consideration by Congress in 2019,” Ujczo said.

    The Trump administration anticipated the arrival of the trade commission’s unvarnished assessment by launching a new charm offensive to sell the merits of the new free trade pact, and to counter growing skepticism about the economic benefits of the deal.

    The U.S. Trade Representative said Thursday the new, yet-to-be-ratified deal will bring auto jobs back to the U.S. from Mexico. In a new nine-page “white paper,” it said the new continental trade deal will generate $57 billion in new auto manufacturing investments and create 76,000 new jobs in the American automotive sector in the next five years.

    A senior USTR official, who briefed journalists on the condition of anonymity, dismissed a report from the International Monetary Fund last month which said the new rules of origin and the labour provisions would lead to a decline in vehicle production in all three countries.

    The new USTR report, however, made no mention of the punishing steel and aluminium tariffs that Trump imposed on Canadian and Mexican steel imports — duties both countries cite as obstacles to ratifying the new pact.

    Flavio Volpe, the president of the Canadian Automotive Parts Manufacturers’ Association, said that there is no way that the U.S. automakers came meet the new content requirements for autos with tariffs of 25-per-cent and 10-per-cent on Canadian and Mexican steel and aluminum still in place.

    “You can get there, but you won’t get there profitably,” said Volpe.

    Mike Blanchfield, The Canadian Press



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