11-010-XIB
Canadian Economic Observer
April 2008

Canada

Ontario tabled its 2008-2009 budget. Highlights include $1.5 billion over three years to retrain unemployed workers, $750 million in tax measures for firms over four years, a 6.2% increase in health care spending and $1 billion for new municipal infrastructure.

Quebec’s budget aimed to stimulate business investment. Measures include elimination of the tax on capital for manufacturers, a new tax credit for the purchase of processing and manufacturing equipment, and a refundable tax credit for new information technology companies.

Husky Energy, with PetroCan and Statoil, announced it will expand its exploration off the East Coast. TransCanada and Williams revealed plans for a new Sunstone pipeline to link natural gas producers in the US Rockies with the western states.

Rio Tinto will invest $500 million to expand capacity of its Labrador City iron ore mines and processing plants from 17 to 22 million tones of concentrates a year. Consolidated Thompson Iron Mines announced a $450 million iron ore mine at Lake Bloom, Quebec, with annual production of 7 million tonnes sold on long-term contract to China. Baffinland Iron Mines arranged a $175 million equity financing for exploration and development at its Mary River iron ore mining project in Nunavut. The estimated cost to develop the mine is $4.1 billion. Alcoa is investing $1.2 billion over seven years to modernize its aluminium smelter on Quebec’s North Shore which will boost production capacity to 548,000 tonnes a year and will create 7,000 jobs.

Canadian National Railway plans to invest $1.3 billion this year to upgrade tracks, bridges, and terminal facilities in Canada and the US.

World

For the second time in three months, central banks around the globe launched coordinated efforts to temporarily inject hundreds of billions of dollars in cash into financial markets to ease the global credit crunch. The measures were led by the US Federal Reserve (at $200 billion) and included a $4 billion injection by the Bank of Canada. Also taking part were the Bank of England, the European Central Bank and the Swiss National Bank.

The Federal Reserve has allowed securities dealers to borrow directly, a privilege once restricted to commercial banks, and is lending up to $200 billion in government securities to investment banks in exchange for mortgage-backed securities in a program called the Term Auction Facility. The surplus regulatory capital requirement for mortgage companies was reduced from 30% to 20%. The discount rate was cut to 2.5% from 3.5% and it approved special financing for JPMorgan Chase to acquire rival investment bank Bear Stearns. The target for the federal funds rate was lowered 75 basis points to 2.25%.