Part 1 Economic Analysis
This part gives an overview of global and Canadian economy and political facts which affect the company’s operation and performance.
1. Global economy environment
The global economy has slowed down its pace to recovery. Affected by recession in the euro zone, business caution in the United States, and the slower-than-anticipated growth among the big emerging economies, estimated output growth around the world in 2012 is marked down to around 3.3%, less than the 3.8% increase in 2011. Accomplished is stagnant international trade, with only 3.2% increase in projection. Weak overseas demand, together with elevating Canadian dollars, contributes to slower growth in export. The softer performance is likely to end in early 2013, since major countries continue implementing stimulus and maintaining interest very low.
Canada’s biggest economic counterpart and export market, the U.S, has realized 2.0% increase in real GDP in July-September period and is estimated to have above 2% growth in both this year and the next. The Federal Reserve has been maintaining short-term interest rate at 0.25% and it would be expected to keep constant for next two years, which would help boost domestic consumption and business investment. Big headwinds to the U.S economy recovery include the ongoing European recession and government’s austerity methods towards fiscal “cliff”. More capital investments would flow in Canada because of the uncertainty challenging the improvement of the economic condition in U.S. In addition, if deficit reduction measures drag the U.S economy back into recession, Canada would also be affected.
2. Domestic economy environment
Due to the slowdown of global economy, Canada’s economy would be stuck at about 1.8% increase this year. Quarterly personal expenditure on consumer goods and service at constant prices grows slightly at 0.3% and the annual change is approximately in line with the real GDP growth. Meanwhile, the unemployment rate remains above 7% and average weekly earnings are growing steadily at 3%-4% . This indicates that labor costs would stay relatively stable in the near future. The impact of inflation is also moderate, with less than 2% growth in CPI. In terms of operating profit of enterprises, positive growth has been realized on yearly base while quarterly change is negative, which demonstrates softer business activities in the macro environment currently. The rising exchange rate of Canadian dollars makes the country’s exporter suffer, but it would save Rogers money on purchasing telecom equipments from abroad. According to the estimation given by Scotia Bank, Canadian dollars would further appreciate against U.S dollars and Euro, which strengthens the company’s purchasing power.
Big changes are taking place in households and governments. After pushing up spending in recent years, households and governments in Canada are facing debt problems: The household debt-to-income ratio reached a level of 152% in first half of 2012, not far away from the 160% level surged by the U.S and U.K before the outbreak of the economic crisis. As households begin shifting their attention to debt control, they would likely choose less for big and long-term credit purchases in the near future. This would exert some impact on Rogers’ sales for high value-added contract plans. But since communication is daily necessary service, the overall performance of the company would not be affected much. Government debt has risen significantly in years, especially at the provincial level. Restraint methods are going to be taken in the forms of spending reductions and tax increases, which would be a negative signal for company’s profit. In contrast to the household and government sectors, businesses are less debt-burdened and holding more liquid assets. More investments are expected, but with cautious plan....