11-010-XIB
Canadian Economic Observer
January 2006

Canada

The Bank of Canada raised its key interest rate a quarter point to 3.25%, the third rise in three months.

Natural gas prices in Ontario will rise 20% on January 1.

Husky Energy won regulatory approval for its $10 billion Sunrise oil sands development. Synenco announced plans to build a $5.3 billion bitumen upgrader north of Edmonton, partly to avoid labour shortages in the oilsands. Enbridge began construction on a $950 million (US) pipeline expansion to carry crude oil from Alberta to the US Midwest. Xstrata received the rights to develop the Donkin coal field in Cape Breton. Talisman, Shell, and Suncor raised their capital spending plans for 2006, partly due to rapidly rising construction and labour costs. Petrocan announced it was curtailing investment on some projects due to the rising costs.

DaimlerChrysler announced investment plans of $608 million in a robotic paint shop in Windsor and up to $1 billion in St. Louis to improve its assembly lines. Ford reached a tentative agreement to reduce its health-care benefits.

Domtar announced plans to cut 1800 jobs, and close 4 pulp and paper mills in Eastern Canada. Weyerhaeuser will shut a paper machine in Ontario, close a plant in Saskatchewan and cut 770 jobs. Cascadia closed a sawmill in Nanaimo, and Abitibi-Consolidated shut mills in Kenora and Stephenville.

The US announced it was halving its 20% duty on Canadian softwood lumber.

Barrick Gold and Placer-Dome announced a $12.1 billion merger than creates the world’s largest gold producer.

World

The Federal Reserve raised its Bank Rate a quarter point to 4.25%, its 13th consecutive hike.

The European Central Bank raised its key rate a quarter point to 2.25%, the first increase in five years.