Briefing highlights
- Ontario to unveil pre-election budget
- Markets, Canadian dollar at a glance
- Focus on ‘FANG’ stocks
- BlackBerry on rise after earnings
- Hudson’s Bay rebounds to profit
- Facebook plans privacy controls
It’s like the more money we come across
— Mo Money Mo Problems, The Notorious B.I.G., from the album Life After Death
It’s not that the Ontario government is going to come across more money.
But it is going to spend it.
Finance Minister Charles Sousa is expected today to unveil a “heavy-spending, pre-election” budget, as Bank of Montreal put it, to warm us up for the June vote.
With the province already estimating a shortfall of about 1 per cent of gross domestic product, or up to $8-billion, Fitch Ratings has already warned it could take a dimmer view of Ontario’s finances.
That’s not to suggest there would be a downgrade after this afternoon’s budget, but the province could be raising the risk of such a move at a later date, said BMO senior economist Robert Kavcic, adding, however, that he assumes Ontario will at some point balance its books again.
Ontario’s budget balance
In billions of dollars, by fiscal year
$0
0
-5
-10
Possible
deficit
range
-15
-20
‘10
‘11
‘12
‘13
‘14
‘15
‘16
‘17
‘18
‘19
By end of fiscal year
THE GLOBE AND MAIL, SOURCE: ONTARIO GOVERNMENT
Ontario’s budget balance
In billions of dollars, by fiscal year
$0
0
-5
-10
Possible
deficit
range
-15
-20
‘10
‘11
‘12
‘13
‘14
‘15
‘16
‘17
‘18
‘19
By end of fiscal year
THE GLOBE AND MAIL, SOURCE: ONTARIO GOVERNMENT
Ontario’s budget balance
In billions of dollars, by fiscal year
$0
0
-5
-10
Possible
deficit
range
-15
-20
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
By end of fiscal year
THE GLOBE AND MAIL, SOURCE: ONTARIO GOVERNMENT
“They’re leaving the door open to a downgrade a few years down the road when the economy deteriorates,” Mr. Kavcic said in an interview.
As The Globe and Mail’s Justin Giovannetti reports, Premier Kathleen Wynne’s Liberal government has been sprinkling billions in promises as she heads into the election, climaxing Tuesday with free child care for 125,000 preschoolers beginning in 2020.
Also expected from Mr. Sousa is spending on health and pharma care, among other things.
“And, if recent Liberal messaging is any guide, look for the province to focus on how this deficit doesn’t cause a deterioration in the net debt-to-GDP ratio,” Mr. Kavcic said in an earlier preview.
“At any rate, this will be a spending-heavy, pre-election budget that likely won’t do any favour from a credit perspective at this later stage of the cycle.”
Ontario’s debt
Net debt, in billions (left axis)
Net debt to GDP (right axis)
$350
40%
300
35
30
250
200
25
20
150
100
15
10
50
0
5
1982
‘88
‘94
‘00
‘06
‘12
End of fiscal year
THE GLOBE AND MAIL, SOURCE: ONTARIO FINANCING
AUTHORITY, RBC ECONOMICS /NOTE: PROJECTED FOR 2017-18
Ontario’s debt
Net debt, in billions (left axis)
Net debt to GDP (right axis)
$350
40%
300
35
250
30
200
25
20
150
100
15
10
50
0
5
1982
1988
1994
2000
2006
2012
End of fiscal year
THE GLOBE AND MAIL, SOURCE: ONTARIO FINANCING AUTHORITY, RBC
ECONOMICS /NOTE: PROJECTED FOR 2017-18
Ontario’s debt
Net debt, in billions (left axis)
Net debt to GDP (right axis)
$350
40%
300
35
250
30
200
25
150
20
100
15
50
10
0
5
1982
1988
1994
2000
2006
2012
End of fiscal year
THE GLOBE AND MAIL, SOURCE: ONTARIO FINANCING AUTHORITY, RBC ECONOMICS
NOTE: PROJECTED FOR 2017-18
Bank of Nova Scotia’s Mary Webb also expects Mr. Sousa to provide details of bringing the province back to balance.
“Barring a substantive economic slowdown, the anticipated red ink plus the government’s ambitious infrastructure agenda are not expected to cause Ontario’s net debt to rise relative to nominal GDP, but any improvement in this ratio may be quite modest,” she said.
“Scotiabank Economics expects Ontario’s output growth to slow from an estimated 2.9 per cent in calendar 2017 to 2.3 per cent this year and 1.9 per cent in 2019, pointing to next year’s nominal GDP increase cooling to 4.1 per cent from a projected 5.1 per cent last year.”
Ontario Premier Kathleen WynneChris Young
Fitch warned earlier this month that any return to an annual deficit could put “negative pressure” on Ontario’s rating.
“The stable outlook at the current rating level assumes a continued focus on tabling balanced budgets and gradually lowering the burden of debt,” the agency said.
“A return to deficit borrowing during a period of economic growth would be inconsistent with Fitch’s current rating expectations.”
At this point, even with net debt at a hefty 38 per cent of GDP in fiscal 2017, Fitch deemed Ontario’s finances as “manageable” given low interest rates and the province’s economy.
But “a planned return to imbalanced operations, necessitating borrowing beyond its already sizable capital plan, may position the province for an even higher debt burden when an eventual economic slowdown takes place, in Fitch’s view,” the rating agency said.
Read more
- Matt Lundy, Tom Cardoso: Five things to watch in Ontario’s budget
- Justin Giovannetti: Ontario Liberals pledge free child care for preschoolers starting in 2020
- Tim Kiladze, Matt Lundy: Ontario’s debt has exploded. Is the province in trouble?
- Tim Shufelt: North American governments’ continued spending stokes concerns about readiness for a downturn
An Ontario budget scene I’d love to see
“You’re spending how much?”
Markets at a glance, ‘FANG’ in focus
“The so called ‘FANG’ stocks of Facebook, Amazon, Netflix and Google (Alphabet) saw some of their biggest falls in years [Tuesday] as concern about a crackdown on how these companies use personal data prompted a re-examination of how these companies are valued,” said CMC Markets chief analyst Michael Hewson.
“As one of the main sectors that has driven the bulk of stock market gains over the past two years, it remains much more susceptible to a major pullback, which, if we see further losses, could act as a bit of a ball and chain for the rest of the equity space.”
Read more
BlackBerry on the rise
BlackBerry Ltd. shares are rising after it narrowed its fourth-quarter loss and it posted record revenue from software and services amid its ongoing transformation.
BlackBerry’s loss narrowed to US$10-million, or 2 US cents, basic, from US$47-million or 9 US cents a year earlier.
Revenue slipped to US$233-million from US$286-million.
“I am very pleased with our execution,” said chief executive officer John Chen.
“We achieved another record quarter in software and services revenue as we grew across all three of our software businesses.”
Read more
- Josh O’Kane: BlackBerry shares jump as it beats expectations
- Joanna Pachner, ROB magazine: The incredible shrinking company