Italian Instability, DNC And GOP At Loggerheads

Last Friday Democrats and Republicans were still at loggerheads, while a series of cuts in budgetary expenditure began on March 1. These cuts should mainly affect the American defense while total cuts will represent $85 billion. The International Monetary Fund believes that if they persist until fall, it could cause a 0.5% slowdown to the country’s growth. By March 27, the U.S. Congress will vote on a minimal budget to ensure the functioning of the state. We can therefore anticipate an escalation of political tensions. Last week, the euro had it difficult as it dropped below 1.30. The main reason for this decline comes from the results of Italy's election, suggesting instability for the coming year.

The Loonie

“If one does not know to which port one is sailing, no wind is favorable.” Lucius Annaeus Seneca

On Friday, statistics were released on Canada’s GDP for the fourth quarter of 2012. Even though the published figure confirmed economists’ expectations, allowing the Canadian dollar to rise several basis points against the greenback, the figure was disappointing nonetheless. The Canadian economy grew at an anemic 0.6% in the final quarter of 2012 in annualized terms, following 0.7% growth in the third quarter. As shown by the graph below, this was the weakest growth since 2011 when the economy shrank 0.8%, primarily due to the impact of the tsunami in Japan that year. Setting aside this atypical event, the last time growth was this poor was during the 2008-2009 recession. The year ended in a whimper for Canada, with manufacturing sales, international securities transactions, and wholesale and retail sales all falling far short of economists’ forecasts. After holding its own through all the turmoil, our economy is finally falling victim to slow growth in the U.S., our largest trading partner.

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