Check for fairness
Property taxes, which pay for most municipal services, are the product of your home’s assessed value multiplied by the local tax rate. You can’t change the tax rate, but you can argue that you have been over-assessed. Begin by checking your home’s assessment report. This is typically a computerized estimate of your home’s selling price, based  on sales information from a particular assessment date. Is it fair? If a similar house on your block sold for much less than your valuation around the time of the assessment date, you may have evidence of over-assessment.

Fix factual errors
Assessments are carried out by provincial agencies or municipalities. If you’ve spotted a factual error on your assessment—it claims you have a two-car garage when you don’t—you can often get this fixed by simply calling the assessor. If there are no clear-cut mistakes, but you still think you’ve been over-assessed, you will need to officially appeal your assessment.

Prepare your case
The more unique your house, the harder it is to value—and the better your chances of winning an appeal. “If you live in a cookie-cutter neighbourhood, assessments are usually pretty accurate,” says William Howse, a Toronto tax lawyer. “But as soon as you get anything unusual in features or lots, or get into pricier neighbourhoods, then the computer can have big problems.” An older or smaller house in an expensive area or proximity to a busy road, railway or school can provide a strong case for appeal.

Compare, compare, compare
Find comparable local homes that sold around your assessment date for less than your home’s assessed value. This will be evidence that your assessment is too high. You’ll need to show a minimum 5% difference between your assessed price and the selling price on three comparable houses to have a good chance of winning.

Chose wisely
Selecting the right comparison houses is the true art behind a successful appeal, says Howse. Pick comparables that are within 100 interior sq ft of your own house (30 sq ft for condos), and ensure the houses  are the same quality as yours. For a formal appeal hearing, Howse strongly recommends hiring a certified appraiser.

What are your odds?
Few homeowners challenge assessments, but of those who do, many are successful. Roughly 45% of Ontario property owners  who submitted evidence of over-assessment last year got their valuations reduced.

   1. Ireland - Debt/GDP: 997%
      The days of Ireland enjoying one of the fastest growing economies in Europe are over, at least for now. The story is all too familiar, as easy credit fueled a housing bubble that burst and damaged consumer confidence.

      After recording budget surpluses in the prior two years, the economy reversed course in 2009 and contracted 7%. This eroded tax revenues and sent the annual deficit to a record 14.3% of GDP. The European Union set a target for Ireland to reduce that figure to 3% by 2014, but the International Monetary Fund has indicated that the deadline will be missed. Moody’s has subsequently lowered its bond rating.

   2. Netherlands - Debt/GDP: 467%
      The national debt in the Netherlands has reached record levels as a result of the world financial crisis and recession. Much of the added burden was caused by significant government support for the country’s banking sector. The increase in debt per capita is second only to that experienced in Ireland.

      The Netherlands joined the eurozone with a hard guilder a decade ago, but its current debt would likely disqualify it for membership.

   3. United Kingdom - Debt/GDP: 409%
      Investment bank Morgan Stanley fears that Great Britain could face a severe debt crisis in the near future if it continues down its current path. According to the bank’s report, this is a case of not putting aside sufficient reserves when the economy was sound. During the peak of the boom, it still ran a budget deficit of 3% of GDP when other European countries were running surpluses exceeding 2%.

      Like many other countries, Britain bought time during the financial crisis by implementing massive fiscal stimulus and forcing the public to fund losses in the private sector. Without the restoration of fiscal credibility, there is a significant danger of a government bond sell-off, pound weakness and a flight of capital.

   4. Switzerland - Debt/GDP: 273%
      Generally regarded as having one of the world’s most stable economies, Switzerland has taken its budget crisis seriously. When the national debt began to escalate in the last decade, the Swiss voted to approve a constitutional amendment forcing the government to balance expenses and revenue during each economic cycle. While annual deficits may still occur, this has instilled discipline in the process and lowered the country’s borrowing costs as investors rushed to safety.

      This so-called “debt brake” was implemented in response to increasing debt stemming from a slowdown in economic growth. Deficits climbed as spending rose for unemployment benefits and tax revenues declined. While government expenditures were cut across the board, rising revenues have not been sufficient to pay down the incurred debt.

   5. Portugal - Debt/GDP: 228%
      With last year’s deficit coming in at 9.4% of GDP, the Portuguese government has instituted a growth and austerity program with the objective of reducing that number to 2.8% by 2013. These measures have sparked strikes in the public sector including postal and transportation services. Those events have been further propelled by unemployment above 10%, the worst in 40 years.

      The root problem has been low productivity and virtually no economic growth in the past few years. Portugal ranks last in GDP growth among countries that adopted the euro as a common currency. Demand for goods and services has stalled, along with innovation and business momentum. In addition, Portugal’s exports have been undercut by cheap labor in countries such as China. (For related reading, see The Economics Of Labor Mobility.)

   6. Austria - Debt/GDP: 214%
      The recession and government assistance to banks have contributed to the budget crisis in Austria. The finance minister has rejected the notion of higher taxes in favor of administrative reforms to cut spending. He has predicted that the annual deficit would grow from 3.5% to 4.7% of GDP between 2010 and 2012 before starting to decline. That peak would be the third-highest since 1976 when such data were first recorded.

      Rising unemployment has resulted in increased expenditures for unemployment compensation and other government benefits. In addition to the reduced payrolls, tax reforms have driven down overall tax revenues.

The Bottom Line
While the U.S. and Canada have large economies, their respective debt-to-GDP ratios are 93% and 62%. The U.S. gets most of the attention because of the size of the numbers that comprise the ratio - $13.5 trillion debt (June 2009) and $14.4 trillion GDP (2009 estimate).

By comparison, China and India have ratios of 7% and 20% respectively. Their economic growth rates have also exceeded the western nations over the past few years, thereby keeping their debt ratios relatively low. If the western nations don’t implement policies to reduce their debts, they run the risk of jeopardizing future economic growth and prosperity.

Article courtesy of Michael Sanibel, Investopedia.com

As was expected the Bank of Canada, today, announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. This against the backdrop of recent fears, from some economic commentators, of a double dip recession in the world economy.

Tavia Grant

Globe and Mail Update Published on Sunday, May. 30, 2010 8:10PM EDT Last updated on Monday, May. 31, 2010 7:07AM EDT

Nearing one of the biggest decisions of his tenure as Governor of the Bank of Canada on Tuesday, Mark Carney will be equipped with a mountain of information on the latest economic trends, produced by the central bank’s small army of economists and researchers. He will have huddled closely with his top lieutenants, discussing the state of financial markets and key factors affecting the economy, such as the housing sector or Europe’s current fiscal woes.

But for all the deliberate information gathering and shared input at the central bank, Mr. Carney wastes no time as he calls the shots, say those who have worked with him.

“As an academic, I found it a bit difficult to keep comments to just three minutes,” says Angelo Melino, a University of Toronto professor who was the bank’s special adviser in 2008 and 2009, through the chaos of the financial crisis. “[Mr. Carney] is very business-like and quick moving. He would no doubt listen, but was very willing to challenge you as well. If you said something that didn’t quite fit together, or fit with his views, he’d have no qualms about responding. He was very much in control.”

Eight times a year, the Bank of Canada issues a decision to hold, raise or cut interest rates it charges for short-term loans to banks. The decision is a product of intensive research and collaboration at the bank’s Ottawa headquarters at 234 Wellington St.

Rate-related discussions ramp up on the Wednesday before the announcement. The governing council, now comprised of Mr. Carney and deputy governors Jean Boivin, Pierre Duguay, John Murray and Timothy Lane, is briefed on four major topics: risks and the likely path for the economy; the bank’s business outlook survey and regional views; credit and money conditions; and market expectations on interest rates.

Research has been assembled by some of the bank’s 200 economists and address every aspect of the economy – from GDP reports to car sales, housing starts, employment, trade and retail sales. Bank staff crunches numbers on how alternative scenarios – higher rates, tighter credit or rising oil prices – would play out. Temporary factors are considered, like strikes, weird weather or special car promotions.

Backgrounders are distributed on dozens of issues: whether Canada’s housing market is overvalued, inventory cycles in China, oil forecasts or U.S. auto sales, to mention a few.

“An enormous amount of effort goes into where we are – trying to figure out what’s going on in the economy because of the lags in the information they receive,” Mr. Melino says. “That’s something the bank wants to do better. During normal times it’s not that important but during a crisis, Christ, finding out where you are is really, really important.”

On Friday morning, over coffee, water or juice in the bank’s board room, the council meets with the monetary policy review committee, which includes six special advisers, chiefs of four economics departments, communications officials and financial markets directors in Montreal and Toronto. Up to 22 people attend, BoC spokeswoman Stephanie Bento says.

The meeting lasts about an hour and a half. They discuss any recent developments in financial markets or the global economy, changes in the labour and real-estate market. They talk about the market, and how it might react to various decisions. They discuss how key messages should be communicated.

Then each person in the room airs his or her views and makes a recommendation on interest rate strategy.

Mr. Carney, 45, landed as Governor in 2008. Since then, a string of long-tenured deputies such as Paul Jenkins, David Longworth, Sheryl Kennedy have left. At the end of July, Pierre Duguay will do likewise. A younger guard, including Tiff Macklem who rejoins the bank as senior deputy governor on July 1, has taken the reins.

By all accounts, it’s a place where Mr. Carney is top dog. His tenure has been marked by increased transparency – the bank now publishes four full-blown monetary policy reports a year, for example – and with that also comes heavier workloads.

The bank has also boosted scrutiny in several areas in recent years, such as risk management and global developments.

Europe will be a key focus this time round, says Sheryl King, who was an economist at the central bank for eight years and is now head of economics at Merrill Lynch Canada.

“They’re going to be looking at possible channels of contagion. Is Europe going to be weaker? Are banks safe, are they liquid? The issue becomes if it’s not contained there, does it spread elsewhere? Everyone’s thinking back to 2008 … those are the types of things they’ll be taking into consideration.”

She describes the tone of these briefings as “cordial,” where people are deferential to the chain of command. Though she left the bank before Mr. Carney’s arrival, her sense is “the Governor’s view is the dominant one, and there’s little dissent once he airs it.”

Most of us know that we have a “credit rating”, but not everybody knows what their beacon score is or how it’s calculated.

Your credit worthiness is assessed two ways:

1. Beacon score, and
2. A detailed history.

Credit scores range from 350 (low) to 850 (high), with 750 being the median. The numerical score is calculated on previous payment history, current indebtedness, credit history length, number and frequency of new credit inquiries and, types of credit held.  Two so-called “Beacon killers,” are payments more than 30 days late (even small amounts) and maxed-out credit cards. The detailed history adds personal information, banking information and specifics on accounts and payments.

Repairing your bruised credit may not be easy, but over time it can be done. Here are three strategies I recommend:

1. Pay all bills on time – late payments hurt ratings.
2. Keep credit balances below 75% of the maximum.
3. Avoid applying for additional credit; too many applications in a short period signals financial difficulties.

You can pull your own credit bureau without it negatively impacting your credit score: https://www.econsumer.equifax.ca/ca/main

By Luann Lasalle, The Canadian Press

MONTREAL - Younger Canadians are expected to lead the way with home buying this year as they take advantage of low interest rates, new jobs and what they consider “good prices,” a bank survey says.

The survey for the Royal Bank suggested that 15 per cent of Canadians between the ages of 18 and 24 were very likely to buy, almost double from eight per cent in 2009.

It’s a marked shift in the attitudes of younger Canadians, who have tightened their budgets over the past few years to cope with tough jobs markets and the recession.

“Our poll found that 35 per cent of younger Canadians, between the ages of 18 and 24, are intending to buy a home due to good real estate prices,” Marcia Moffat, RBC’s head of home equity financing in Toronto, said Monday.

The national average price for a home was $328,537 in January, according to the Canadian Real Estate Association.

Thirty-one per cent of 18 to 24-year-olds surveyed in the online poll said they would buy a house because of a new job. The survey also found 22 per cent in that young age group wanted to buy a home because they considered interest rates were good.

CIBC World Markets senior economist Benjamin Tal said more young people are getting into the real estate market, taking advantage of low interest rates, lower down payments and more years to pay off their mortgages.

Tal said he estimates the young people getting into the market as a bit older, between the ages of 22 and 28.

“Basically parents are begging their kids to buy now because they remember when they were paying 12 to 15 per cent mortgage interest,” Tal said.

“So there’s a sense of urgency to get into the market and young people are a part of it.”

Tal described the coming real estate market of the next three or four years as “boring.”

“I think that what we are doing now is that we are basically stealing activity from the future.”

The RBC survey also suggested that overall attitudes are changing as more Canadians return to shopping for homes as the economy recovers, even though it’s considered a seller’s market.

“Confidence in the housing market is back, essentially,” RBC senior economist Robert Hogue said.

Royal Bank said the study found more Canadians are “very likely” to buy a new home in the next two years.

Ten per cent of the 2,047 people of all ages surveyed for the study said they planned to buy a home within two years - up from seven per cent two years ago.

The RBC study also found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years.

“At this stage last year, there was doom and gloom all around and it definitely affected the housing market,” Hogue said.

One-quarter of those surveyed, 26 per cent, said they expect their home to be their primary source of income when they retire.

However, the surge in optimism doesn’t necessarily mean that Canadians have forgotten about past economic troubles.

The survey found they are still more cautious when it comes to mortgages. Forty-four per cent of those surveyed who plan to buy a home in the next two years said they would take a fixed-rate mortgage.

Also on Monday, the latest new homes numbers showed that the annual rate of housing starts were up in February.

The Canada Mortgage and Housing Corp. said that the seasonally adjusted annual rate of housing starts reached 196,700 units in February, an increase from 185,400 in January 2010.

Senior CMHC economist Bill Clark said the market is seeing a lot of “catch-up” and consumers in Ontario and B.C. are likely trying to avoid the harmonized sales tax before the summer.

“So if you roll all of that together it’s really sort of one big recipe for housing starts to go up,” Clark said.

The report showed the gain was concentrated in the multiple starts segment, particularly in Toronto.

Urban starts increased nine per cent to 179,100 units in February.

Urban multiple starts increased by 19.1 per cent to 89,900 units, while single urban starts increased by 0.5 per cent to 89,200 units.

The annual rate of urban starts increased 28.6 per cent in Ontario in February, 14.3 per cent in Atlantic Canada, 10.8 per cent in the Prairies and by eight per cent in British Columbia.

In Quebec, urban starts fell 14.1 per cent.

Rural starts were estimated at a seasonally adjusted annual rate of 17,600 units in February.

By Julian Beltrame, The Canadian Press

OTTAWA - The federal government is expected to announce new rules Tuesday that would make it more difficult for first-time buyers to enter Canada’s hot housing market.

Sources have told The Canadian Press that Finance Minister Jim Flaherty is ready to move on the issue because of concern Canadians may be taking on too much debt.

Economists have advised the minister the best way to protect Canadians is to institute a debt affordability test in order to qualify for a Canadian Mortgage and Housing Corp. insured mortgage.

Currently, prospective home owners can qualify for a CMHC insured mortgage if they put at least five per cent down on the cost of a home.

But bank officials say they usually apply a cushion to ensure home buyers have sufficient income to meet payment requirements if floating rates rise, in some cases by more than two percentage points.

Flaherty is expected to make such an income test a condition for acquiring an CMHC insured mortgage.

Another possibility is for the minister to reduce the amortization period from 35 years to 30, which would have the effect of raising monthly payments.

It is believed Flaherty rejected more radical measures to cool the housing market, which has reached record levels in sales and near record levels in average home prices despite the weak economy.

Economists have cautioned the minister against putting on the brakes too strongly. They say raising the minimum downpayment requirement to 10 per cent, one of the suggestions given the minister, could cause a crash in a key mainstay of the fragile economic recovery.

The Bank of Canada has been warning for months that homeowners should ensure they can absorb an increase in their floating rate mortgages once rates start rising, likely as early as this summer.

By the central bank’s own stress test calculation, almost one in 10 households would have a debt-service ratio that makes them vulnerable to economic shocks by the middle of 2012 if current trend continue.

In an address written for deputy governor Timothy Lane last month, the bank suggested the government has all the tools it needs to address the problem.

“An array of supervisory and regulatory instruments can be used by the government to restrain a buildup of systemic risks,” said notes the address.

“These include capital requirements for institutions, leverage ratios, loan-to-value ratios, terms and conditions for mortgage insurance, and a variety of other measures. These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions.”

Ottawa — Globe and Mail Update Published on Wednesday, Dec. 16, 2009 12:58PM EST Last updated on Wednesday, Dec. 16, 2009 5:24PM EST

Bank of Canada Governor Mark Carney again warned Canadians Wednesday not to borrow more than they will be able to handle when ultra-low interest rates start to rise, urging households and lenders to act responsibly while debt risks are “still manageable.”

“When risks are still manageable is precisely the best time to act,” Mr. Carney said in the text of a speech he was delivering to a business audience in Toronto. “We must be vigilant, and all parties must fulfill their responsibilities.”

While saying lenders should “actively monitor risk” and not take “false comfort” from mortgage insurance and the past health of household credit, Mr. Carney implored Canadians to “ensure that in the future, when the recovery takes hold and extraordinary measures are unwound, they can still service their debts.”

Mr. Carney’s remarks expand on the central bank’s semi-annual review of the financial system last week, in which he said household debt is now the biggest risk to the country’s financial system, even if it’s still “relatively low” and unlikely to reach levels that could cripple banks’ balance sheets.

That review used a “stress test” to show rising interest rates between mid-2010 and mid-2012 would saddle a growing number of Canadians with debt loads big enough to leave them “financially vulnerable.” At the same time, Mr. Carney said in his remarks that although the Canadian economic outlook has improved, tepid demand in the U.S. for Canadian exports will make the economic recovery not only “more protracted” than usual, but also more dependent on spending at home.

And as the Canadian economy – which resumed growth in the third quarter on the strength of domestic spending – picks up steam, Mr. Carney warned that Canadians may save too little and borrow too much.

Nonetheless, he hinted that he would not seek to rush a return to higher borrowing costs to rein in spending and that monetary tightening won’t come until inflation is closer to the bank’s 2 per cent target.

“Whatever happens, the bank’s monetary policy reaction to consumer behaviour will always be driven by its implications – taken in conjunction with all other relevant factors – for inflation over the medium-term horizon,” he said.

The central bank has made a conditional commitment to keep interest rates on hold until at least the middle of next year.

With the Bank of Canada’s benchmark policy rate at a record low 0.25 per cent since April, cheap mortgage rates, and fiscal incentives such as allowing first-time home buyers to use more of their registered retirement savings as a down payment, have fuelled buying in the housing market and elsewhere in the economy.

In the speech, Mr. Carney pointed to the U.S. subprime mortgage collapse and the subsequent meltdown of that country’s financial system to remind Canadians that growing debt burdens, even if confined to a small slice of the population, can cause problems for the whole economy.

“A shock to economic conditions could be transmitted to the broader financial system through deterioration in the credit quality of loans to households,” Mr. Carney said. “In such an event, increased loan-loss provisions and reduced quality of the remaining loans could lead to tighter credit conditions more broadly.” He also repeated much of the data from his report last Thursday, including the fact that personal bankruptcies in Canada rose this year to the highest level since 1991. In his remarks, he also noted that even as real consumer credit, including home equity lines of credit, declined during the recessions of the early 1980s and 1990s, it’s up 7 per cent in the past year.

In his report last week, Mr. Carney said household debt remains “a key vulnerability over time,” and in the stress test model the central bank assumed that the ratio of debt to income would rise from 1.42, or 1.42 per cent, in the second quarter of this year, to 1.60, or 1.60 per cent, by mid-2012.

To illustrate the point that Canadians’ debt could become a bigger risk once policy makers lift the main interest rate, the bank showed the proportion of households with debt-service ratios higher than 40 per cent of income would rise to 8.5 per cent by the second quarter of 2012, assuming the central bank’s rate is 3.2 per cent. That share would climb to 9.6 per cent assuming the central bank’s rate is 4.5 per cent. The proportion of households with more than 40 per cent debt-service costs was 6.1 per cent over the past decade and peaked at 7.4 per cent in 2000.

The central bank’s report said Canadian banks currently have more than enough capital on hand to absorb potential losses, suggesting that even the worst-case scenario in the stress test would fall short of risking a collapse of the financial system.

Addressing the personal savings rate, Mr. Carney said a savings rate at current levels, or slightly lower, is what the central bank is projecting as part of a consumer-led recovery.

When asked about the potential for a bubble in the housing market he reiterated that the central bank’s core focus remains fixed on inflation. “Monetary policy in Canada doesn’t target specific assets or asset prices,” he said. “It will be set to achieve the 2 per cent [inflation] target.”

Tom Raum, THE ASSOCIATED PRESS
The Canadian Press, 2009

WASHINGTON - It is about to become official: The U.S. recession is over - but not the pain.

The government will release figures this week expected to show that the economy has awakened from its deepest slump since the 1930s and is in the early stages of a recovery. But the following week, the government will issue another set of figures expected to show unemployment continuing to rise toward and possibly above a clearly recessionary 10 per cent.

How can both be possible?

The government releases third-quarter Gross Domestic Product figures on Thursday. Many forecasters say they will show GDP growing at an annual rate of about 3 per cent, validating a widely held belief among economists that the recession ended in June or July.

But try telling that to the more than 15 million still unemployed, the small businesses and individuals who can’t get loans and the people whose homes are worth less than their mortgages.

Assertions by government and private economists that the recession is over - issued amid graphic examples of continuing wide distress - are raising fresh questions about economic scorekeeping.

The national recession may be technically over, but the state of the economy remains in the eyes of the beholder.

Or, as Ronald Reagan liked to say, a recession is when your neighbour loses his or her job. Depression is when you lose yours.

A survey of economic forecasters prepared by Blue Chip Economic Indicators, a research organization, predicted GDP growth to remain positive in each quarter through the end of 2010. In a survey by the National Association of Business Economics, 34 of 43 economists polled said the recession is over.

“From a technical perspective, the recession is very likely over,” said Federal Reserve Chairman Ben Bernanke.

“A recession that showed no signs of ending last January appears to be firmly entering the recovery phase,” said Christina Romer, the chair of the White House Council of Economic Advisers.

But nobody is sugar coating the statistics, especially in the administration, which agrees with private surveys suggesting that unemployment will hover near 10 per cent through most of next year.

“Even when you’ve turned the corner, you have so much work to do,” Romer told Congress’ Joint Economics Committee.

And while she credited much of the turnabout to government stimulus measures and moves by the Fed, she said “by mid-2010, fiscal stimulus will be contributing little to further growth.”

Even ahead of the report expected to show an increase in economic growth, The Conference Board, a private Chicago-based research group, reported Tuesday that consumers’ confidence about the U.S. economy fell unexpectedly in October as job prospects remained bleak.

That fueled speculation that an already gloomy holiday shopping forecast could worsen. Consumer spending accounts for more than two-thirds of the entire economy.

The economy has lost 7.2 million jobs since the recession began in December 2007, 3.4 million of them since President Barack Obama took office in January.

James K. Galbraith, an economist at the University of Texas at Austin, suggests too much attention is given to when recessions technically begin and not enough to other measures of the economy.

“It’s just a word. A recession technically lasts during negative quarters. But that doesn’t mean you’re back to prosperity once you have positive growth. You’re back to prosperity when the unemployment rate is back around 4 per cent,” Galbraith said. And that, he said, could take years.

A recession is popularly defined as two or more consecutive quarters of negative economic growth, or declining output.

But a more refined determination is made by the National Bureau of Economic Research, a private group of leading economists charged with dating the start and end of economic downturns. It not only looks at GDP but at employment levels, real personal income, industrial production and wholesale and retail sales.

It put the start date at December 2007 and has not yet called an end.

There have been 11 recessions since World War II. In the two most recent ones, job growth lagged long after the recessions were deemed over. In the most recent two - July 1990-March 1991 and March-November 2001 - the unemployment rate did not fall to prerecession levels for several years.

After the eight-month 2001 recession, the unemployment rate went from a prerecession 4 per cent in 2000 to 4.8 per cent in 2001. Then it kept climbing even higher - to 5.8 per cent in 2002 to 6 per cent in 2003. It didn’t return to under 5 per cent until 2006, when it fell to 4.6 per cent.

While there are clear signs of recovery, it is uneven.

Stocks have surged about 50 per cent since their March lows. And a year after Washington rescued the financial industry, some large banks and Wall Street firms have roared back to profitability.

But smaller banks and other businesses are struggling, and many have failed or are failing.

That disconnect sparked anger among the public and led to sweeping government action last week to limit executive compensation at financial firms that accepted federal bailout money.

“While credit may be more available for large businesses, too many small business owners are still struggling to get the credit they need,” Obama said in his weekly radio and Internet address. “These are the very taxpayers who stood by America’s banks in a crisis - and now it’s time for our banks to stand by creditworthy small businesses, and make the loans they need to open their doors, grow their operations and create new jobs.”

There have been modest improvements in manufacturing and other parts of the nonfinancial business sector, yet lingering signs of weakness in commercial real estate and retail spending.

Economists suggest some of the expected increase in economic growth is a bounce off the bottom. They attribute it to government stimulus spending, including the now-expired Cash for Clunkers program; accommodative Fed monetary policies and widespread cost-cutting by companies.

Many companies let inventories run down so much that when they ran out, orders picked up. Home resales ticked up as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. And U.S. exporters have benefited from a relentless decline of the dollar that has made U.S. goods cheaper and more competitive overseas.

But none of this adds up to a sustainable upswing.

“Absent robust job growth, it is not a true economic recovery,” said White House economic adviser Jared Bernstein.

Strong dollar will be a drag on recovery, Carney says.

By JULIAN BELTRAME The Canadian Press

OTTAWA — The stubbornly strong loonie is the major impediment to the Canadian economy rebounding more strongly from the recent deep recession, says Bank of Canada governor Mark Carney.

In a new warning about the currency that is approaching parity with the U.S. greenback, Carney says Canada would experience noticeably stronger recovery next year and in 2011 if the loonie had stayed at the 87-cent level the bank envisaged in the summer.

Carney said Thursday that’s why the bank made it clear this week that barring an unforeseen spike in inflation, it will keep interest rates at the historic low of 0.25 per cent until at least next July.

Carney said the central bank has several tools at its disposal, including intervention in the currency market, but didn’t specify which would be put to use.

“Intervention is always an option,” he said.

“Markets should take seriously our determination to set policy to achieve the inflation target. Markets sometimes lose their focus. We don’t lose our focus.”

The loonie closed 0.16 of a cent lower at 95.44 cents US on Thursday, but many expect it to hit parity in the next few months, mainly because of weakness in the American dollar, which has dropped against most of the world’s major currencies.

A high loonie makes it cheaper to take U.S. vacations and buy imported goods. But it also harms the Canadian manufacturing sector because it makes exports of everything from minerals and metals to newsprint, machinery and lumber more expensive for buyers in the United States, Canada’s main export market.

Carney called the loonie’s persistent rise since July “”the major downside risk” to the economy, noting that although the loonie was higher two years ago, the difference now is that it comes during a period of severe economic weakness.

His comments came after the central bank issued a comprehensive 28-page quarterly review of the global economy, showing a sharp rebound is underway, fuelled by government stimulus and the need to restock depleted inventories.

But in Canada, the strong burst in activity will last at most a few months more before giving way to the slow and difficult climb back from the deep hole that the recession dug over the past year, the review adds.

The bank is more optimistic about the second half of this year than it was three months ago, noting modest employment gains in August and September.

In a supporting report, Statistics Canada announced that retail sales jumped 0.8 per cent in August to $34.5 billion, largely as a result of strong activity at new car dealerships and at gas stations.
“When the labour market fares well, good things tend to happen to the rest of the Canadian economy,” said CIBC economist Krishen Rangasamy.

The domestic economy is now expected to record a two-per-cent gain in the third quarter — the July-September period — and 3.3 per cent during the last three months of this year. The Bank of Canada’s July forecast called for growth of 1.3 per cent and three per cent, in the third and fourth quarters respectively.

A number of things have broken right for Canada to make this happen. Commodity prices, particularly oil, have firmed up, financial markets have stabilized faster than expected, and the global economy, particularly in China, has rebounded quicker and stronger than expected.

And consumers have bounced back strongly, although the manufacturing export sector continues to struggle. There are also concerns about how future government restraint might erode growth as Ontario, Alberta and the federal government warn of spending curbs to cope with large deficits.

That will be more a problem after 2011 when many temporary stimulus measures reach sunset and governments try to work off massive deficits, said TD Bank economist Pascal Gauthier. But he believes governments will play it by ear when they start withdrawing stimulus, or enact deep spending cuts.

“I don’t think the governments themselves could cause a recession because by that time we will have some clarity on whether the private-sector recovery has some legs in it,” he said.

For the next two years, however, it will be the loonie that cuts away at economic growth, the bank’s outlook argues.

Even if the dollar averages 96 cents US, and does not go above parity as some expect, the impact on the export side of the economy will severe enough to restrict growth to 3.0 per cent in 2010 and 3.3 per cent in 2011, a smaller bounce than normally follows deep recessions.

“Over the balance of the projection period, growth is slightly lower, reflecting the effect of the higher value of the Canadian dollar,” the bank said, noting that a high dollar will make life difficult for manufacturers to sell in foreign markets.

On Tuesday, the bank issued a similar warning when it reaffirmed, in strong words, that it intends to keep interest rates at the historic low of 0.25 per cent at least until next summer.

The language had the desired impact of driving the loonie down nearly two cents Tuesday.

Still, no economist believes Carney strong warnings will be sufficient to keep the loonie grounded for long. In the final analysis, the bank believes it has already set back by three months the recovery period.
It won’t be until late 2011 — two full years from now — that Canada’s economy will again be hitting on all cylinders, the bank says.