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Bad news bearers

Saturday, November 1, 2008

Canada’s CEOs are warning things are going to get worse

Last Updated: 1st November 2008, 2:28am

A trader works the floor of the New York Stock Exchange yesterday as a graph tracks the dismal state of the U.S. economy. (BRENDAN MCDERMID/Reuters)
A trader works the floor of the New York Stock Exchange yesterday as a graph tracks the dismal state of the U.S. economy. (BRENDAN MCDERMID/Reuters)

For months, our leaders dared not utter the “R” word.

But now they’re choking on it, because it looks like it’s official. Canada is in a recession. And believe me, Ontario’s been in one for months.

So now — as the world’s oil giants continue to hoard the wealth, raking in even bigger record profits this quarter, while global trade seizes up — Canada’s CEOs are warning our economy is going to get worse before it gets better.

The Canadian Council of Chief Executives is asking governments to shed their political stripes and come together to work with businesses in damage control, so that the impact on Canadian families can be minimized.

“Governments and business can take action now to minimize the damage and lay the groundwork for early and sustained recovery,” said 150 chief executives in a statement. And surprise, surprise — they’d rather Ottawa hold off on tax cuts than go into a deficit, while they suggest prudent and targeted spending on infrastructure, education, research and development and innovation.

But despite the fact Canada’s economy shrank by a hefty 0.3% in August, some analysts are still in denial. The experts at RBC Financial, for example, are now predicting our economy will grow by 1.5% this year, down from an earlier forecast of 2.5%.

I say that’s a long shot, considering this pattern:

Our economy shrank by -0.1% in March, followed by 0.4% growth in April, then shrank again by -0.1% in May, was flat at 0% in June, grew by 0.7% in July, and shrank by -0.3% in August. Year over year, our economy shrank by -0.6% in August, with weakness in manufacturing, wholesale trade and energy.

Technically, a full-blown recession is six consecutive months or two consecutive quarters of negative growth.

And now, some experts warn the full impact of a raging global financial crisis is hitting Canada, and will show up in GDP (gross domestic product) numbers for the rest of the year.

“In September and October, the consumer and economy is expected to lose its innocence as the full brunt of the global financial crunch washes up on the Canadian shores,” said HSBC Canada markets strategist Stewart Hall.

One sector that kept Canada’s resource-rich economy afloat while turbulence hit elsewhere, especially in our manufacturing heartland, was oil and gas. But, according to Statistics Canada, it’s now taking a hit with output in the energy sector falling by -0.5% in August, after rising 2.7% in July, when world crude price hit a record high of US$147 a barrel, with a little help from Wall Street speculators.

Since hitting its high, crude prices have been falling as fear of a global depression grew and demand fell. During October — the worst month in history for stock markets — crude prices slipped 32.6%, closing yesterday at US$67.81 for a December contract on the New York Mercantile Exchange.

But, that hasn’t slowed record profits in the oil patch.

This week, Imperial Oil reported a whopping 70% jump in its third quarter, ending Sept. 30, with the Calgary-based giant raking in a record $1.4 billion or $1.56 a share.

And its parent, Texas-based Exxon Mobil — the world’s largest energy player — beat its previous record of $11.68 billion in the second quarter, reporting a staggering $14.83 billion profit .

Yesterday, Chevron capped off the profit parade reporting the largest quarterly profit in its 129-year history, with net income of US$7.89 billion.

Collectively, the world’s Big Five (Chevon, Exxon Mobil, BP PLC, Royal Dutch Shell and Conoco Phillips) raked in $44.4 billion, up 58% from a year ago in the third quarter.

Yet, despite being richer than more than half the world’s economies combined, these giants are now warning they’re bracing for the fallout of a global economic meltdown. One, I might add, they helped to ignite by limiting production when demand was at a high, and peak-oil speculators were laughing all the way to the bank.

Don’t cry me a river. Cry for all the innocent people who will now pay. A recession is here. And a global depression could be on the way.

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