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Economy rallies in North America despite turbulence

BMO Harris Private Banking looks for a boost from housing.


March 20, 2013
by PLANT STAFF

TORONTO — Despite the ongoing uncertainty in Europe and China, and the fallout from the US failure to avert sequestration, the North American economy still managed to show some positive growth in February, reports BMO Harris Private Banking.

Its latest Market Outlook Commentary Report noted that by not averting sequestration, the US Treasury withheld $85 billion needed to run federal agencies. Yet the economy continues to improve. Employment grew by 157,000 new jobs in January and both manufacturing and non-manufacturing business activity was strong.

“Behind the scenes, both sides are working towards an agreement that will likely emerge over the next three to six months and further stimulate the economy,” said Daniel Theriault, chief investment strategist at BMO Harris Private Banking.

The report stated that unease returned to Europe in the wake of the anti-austerity Italian election results, Britain’s loss of its triple-A credit rating and troubling events in Spain. Additionally, high labour costs and weaker productivity has eroded the competitiveness of French exporters, and Holland’s economy slipped as well. As a result, international markets have suffered and concerns are being voiced about Europe’s northern economies.

Theriault said this volatile market environment will likely continue until governments in Europe start to focus on measures that will reduce debt and bolster growth.

Companies in Canada’s mining and construction sectors have been reluctant to spend in the last few months, which has helped to stall business investment, and markets began to falter because investors grew wary.

The materials sector dragged down overall economic performance, an indication that a full export recovery is still in the early stages.

“Canada’s export sector relies heavily on robust economies in the U.S. and China, neither of which has hit their stride yet,” said Theriault. “But lower mortgage rates could spur demand in the cooling housing market, which could give the Canadian economy a boost.”

The Bank of Montreal cut the price of a five-year, fixed-rate mortgage to 2.99%, which has earned a rebuke from finance minister Jim Flaherty.

The report also noted the S&P/TSX equity index delivered respectable returns for February at 1.08%, which continues the momentum from January.

Click here for a copy of the report.