Mark Carney policies favoured condos over factories, CIBC says

CBC News Posted: Mar 12, 2014 4:09 PM ET Last Updated: Mar 12, 2014 5:14 PM ET

The chief economist of one of Canada's largest banks pointed the finger Wednesday at Mark Carney for a monetary policy that pumped up house prices and the loonie while hurting Canada's manufacturing output in the long run.

In a recent note, CIBC's chief economist Avery Shenfeld said monetary policy under Mark Carney's watch at the Bank of Canada left the economy in worse shape today than it could otherwise have been.

Canada's largest trading partner, the U.S., is finally showing signs of robust expansion after a lengthy recession and recovery. But Canada's economy isn't taking as much advantage of that as it normally would, because there is less production capacity available to be ramped up at factories.

One of the effects of the central bank's action under Carney's helm was a large run-up in the value of the Canadian dollar. The loonie repeatedly traded above par with the U.S. greenback, spiking above 105 cents US a number of times in 2011.

While the suddenly strong loonie had good and bad effects on many aspects of Canada's economy, one area where it was a definite negative was in manufacturing. 

A strong currency makes Canadian goods more expensive internationally, which makes it a tougher sell for a company that depends on exports to decide to expand operations here. The massive amounts of stimulus at the time were drawing money away from the U.S. dollar and pumping up the value of almost every other currency against it, the loonie included.

But Shenfeld notes that unlike other countries which took steps to offset it, Canada's central bank at the time took a hands-off approach and allowed the loonie to rise unimpeded. "Rather than intervene to neutralize the impact of hot money capital flows on the exchange rate (as the Swiss did) the Bank of Canada tried to offset the impact ... by keeping interest rates low enough to stimulate housing and domestic consumption," Shenfeld said.

The result, he said, was the ensuing real estate boom, as cheap lending gave people an incentive to borrow. Those moves also came at a time when companies were making long term decisions "on where to retain plants," Shenfeld said, "and where to shutter them for good."

"In effect, monetary and exchange rate policy traded off more condos for fewer factories," he said in the note.

It's that lack of manufacturing capacity that's now holding the economy back, as Canada is less able to expand quickly to increased demand.

In recent public statements, Carney's successor Stephen Poloz and other bank officials have speculated that part of Canada's difficulties returning to pre-recession levels in exports is that there are about 9,000 fewer Canadian exporting companies in existence than was the case in 2008, and others have ramped down production capacity.

The impact of such an exodus is that even if foreign demand for Canadian products increases, there simply aren't enough companies around to fill it.

Manufacturing woes have improved a bit lately as the dollar has dropped back to a more "appropriately valued" level, as Shenfeld puts it, around 90 cents US.

"But given how infrequently production location decisions come up, the legacy of earlier plant closures will be with us for years to come," he said.

CIBC is expecting the Canadian economy will expand by 2.1 per cent this year. That's about a half a percentage point less than what the Bank of Canada is expecting.

With files from The Canadian Press Mar 12, 2014 4:41 PM ET Mar 12, 2014 4:34 PM ET Mar 12, 2014 4:15 PM ET Mar 12, 2014 4:34 PM ET Mar 12, 2014 4:41 PM ET

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TSX, Canadian dollar lose ground on commodity worries

The resource sector inflicted further losses on the Toronto stock market as commodities continued to retreat amid worries about Chinese growth.

The S&P/TSX composite index dropped 51.05 points to 14,216.18. The commodity-sensitive Canadian dollar fell 0.28 of a cent to 89.79 cents US.

U.S. indexes also declined as the Dow Jones industrials lost 67.2 points to 16,284.05, the Nasdaq was down 22.49 points to 4,284.69 and the S&P 500 index dropped 9.24 points to 1,858.39.

The catalyst for the latest round of concerns about growth in the world's second-biggest economy was data released over the weekend showing a drop of 18 per cent in Chinese exports during February. That data had followed news at the end of last week that Chinese authorities had given the go ahead for the country's first credit default.

Copper has tumbled in recent days to the lowest level since mid-2010, having fallen 8.3 per cent over the last three sessions. It was down a penny to US$2.94 a pound while oil gave back $1.74 to US$98.29 a barrel.

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Feta, parmesan, Gorgonzola cheese names prompt U.S.-Europe trade stink

The Associated Press Posted: Mar 12, 2014 11:35 AM ET Last Updated: Mar 12, 2014 11:50 AM ET

Errico Auricchio produced cheese with his family in Italy until he brought his trade to the United States more than 30 years ago. Now, the European Union is saying his cheese isn't authentic enough to carry a European name.

As part of trade talks, the EU wants to ban the use of names like Parmesan, feta and Gorgonzola on cheese made in the United States. The argument is that the American-made cheeses are shadows of the original European varieties and cut into sales and identity of the European cheeses.

Auricchio, president of Wisconsin-based BelGioioso Cheese Inc., says he has no idea what he would call his Parmesan if he had to find a new name.

"I Can't Believe It's Not Parmesan," he jokes.

The Europeans say Parmesan should only come from Parma, Italy, not from Auricchio's plant or those familiar green cylinders that American companies sell. Feta should only be from Greece, they say, even though feta isn't a place. The EU argues it "is so closely connected to Greece as to be identified as an inherently Greek product."

So, a little "hard-grated cheese" for your pasta? It doesn't have quite the same ring as Parmesan.

U.S. dairy producers, cheesemakers and food companies are all fighting the idea, which they say would hurt the $4 billion domestic cheese industry and endlessly confuse consumers.

"It's really stunning that the Europeans are trying to claw back products made popular in other countries," says Jim Mulhern, president of the National Milk Producers Federation, which represents U.S. dairy farmers.

The European Union would not say exactly what it is proposing or even whether it will be discussed this week as a new round of talks on an EU-United States free trade agreement opens in Brussels.

European Commission spokesman Roger Waite would only say that the question "is an important issue for the EU."

That's clear from recent agreements with Canada and Central America, where certain cheese names were restricted unless the cheese came from Europe. Under the Canadian agreement, for example, new feta products manufactured in Canada can only be marketed as feta-like or feta-style, and they can't use Greek letters or other symbols that evoke Greece.

Though it has not laid out a public proposal, the EU is expected to make similar attempts to restrict marketing of U.S.-made cheeses, possibly including Parmesan, Asiago, Gorgonzola, feta, fontina, grana, Muenster, Neufchatel and Romano.

And it may not be just cheese. Other products with traditional ties to European countries that could be affected include bologna, Black Forest ham, Greek yogurt, Valencia oranges and prosciutto, among other foods.

The trade negotiations are important for the EU as Europe has tried to protect its share of agricultural exports and pull itself out of recession. The ability to exclusively sell some of the continent's most famous and traditional products would prevent others from cutting into those markets.

Concerned about the possible impact of changing the labels on those popular foods, a bipartisan group of 55 senators wrote U.S. Trade Representative Michael Froman and Agriculture Secretary Tom Vilsack this week asking them not to agree to any such proposals by the EU.

Led by New York Sen. Chuck Schumer, D-N.Y., and Pennsylvania Sen. Patrick Toomey, R-Pa., the members wrote that in the states they represent, "many small- or medium-sized, family-owned businesses could have their businesses unfairly restricted" and that export businesses could be gravely hurt.

Schumer said artisanal cheese production is a growing industry across New York.

"Muenster is Muenster, no matter how you slice it," he says.

Trevor Kinkaid, a spokesman for the U.S. trade representative, said that conversations on the issue are in the early stages but that the U.S. and E.U. have "different points of view" on the topic.

The agency wouldn't disclose details of the negotiations, but Kinkaid said the U.S. government is "committed to increasing opportunity for U.S. businesses, farmers and workers through trade."

Large food companies that mass produce the cheeses are also fighting the idea. Kraft, closely identified with its grated Parmesan cheese, says the cheese names have long been considered generic in the United States.

"Such restrictions could not only be costly to food makers, but also potentially confusing for consumers if the labels of their favourite products using these generic names were required to change," says Kraft spokesman Basil Maglaris.

Jaime Castaneda works for the U.S. Dairy Export Council and is the director of a group formed to fight the EU changes, the Consortium for Common Food Names. He says the idea that great cheese can only come from Europe "is just not the case anymore."

He points out that artisanal and locally produced foods are more popular than ever here and says some consumers may actually prefer the American brands. European producers can still lay claim to more place-specific names, like Parmigiano-Reggiano, he says.

"This is about rural America and jobs," he says.

Auricchio and other producers say they are angry because it was Europeans who originally brought the cheeses here, and the American companies have made them more popular and profitable in a huge market.

"We have invested years and years making these cheeses," Auricchio says. "You cannot stop the spreading of culture, especially in the global economy."

Mar 12, 2014 4:41 PM ET Mar 12, 2014 4:34 PM ET Mar 12, 2014 4:15 PM ET Mar 12, 2014 4:34 PM ET Mar 12, 2014 4:41 PM ET

The data on this site is informational only and may be delayed; it is not intended as trading or investment advice and you should not rely on it as such.

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