The Canadian economy grew at an annualized rate of 0.4 percent in the third quarter, a pace that disappointed analysts but nevertheless marked the first quarterly expansion since the third quarter of 2008. Zero-point-four is still better than contractions of 3.4 percent and 6.1 percent in the second and first quarters, respectively.

Households and businesses led the way out of recession. Consumer spending rose 3.1 percent, led by an 8.1 percent increase in expenditures on housing. Capital expenditures by business grew by 4.2 percent, the first such growth since the fourth quarter of 2007.

Final domestic demand rose 4.7 percent in the third quarter. That overall GDP expanded by only 0.4 percent annualized illustrates the importance of exports to the Canadian economy.

Data from StatsCan indicate exports, which had shrunk in five previous quarters, grew 15.3 percent, boosted by sales of auto-related goods and energy products. But import growth of 36 percent outpaced this gain. Net exports trimmed an estimated 5.3 percentage points off GDP growth.

Almost all the growth happened in September after output was flat in July and August; this, in addition to October’s strong housing numbers, suggests fourth-quarter GDP will be strong enough to satisfy expectations. But whether the Canadian recovery pales in comparison to previous recoveries or eventually warms up still depends on what happens in the US.

Americans are becoming thriftier, and goods they may have bought from Canada are getting more expensive. These mutually repellent forces are likely to persist for some time. There’s a lot of de-leveraging left to be done, and the days of cheap-and-easy oil are over.

Although Americans are no longer the world’s consumer of last resort, there are potential and emerging middle classes in several Asian countries. Demand from these economies will support commodities prices over the long term, boosting the Canadian dollar.

But Canada is working to diversify its export base. Harper departs today for Beijing, Shanghai and Hong Kong. He’ll conclude his trip to Asia with a stopover Dec. 6-7 in South Korea, where he’ll become the first Canadian prime minister to address the South Korean national assembly.

But this is all about the Middle Kingdom. Business relationships in or with China begin with politics; the most important thing about this visit is the visit itself, so long as Harper’s and succeeding Canadian governments sustain the engagement. If after Harper returns to Ottawa we see the same volume of two-way, high-level-minister traffic we saw leading up to it, we’ll know current leadership takes seriously Canada-China trade and investment.

One key point often mentioned in the media these days, with regard to President Obama’s early November visit to China as well now to Prime Minister Harper’s impending trip, is the issue of China’s currency and its macroeconomic policies and how they perpetuate global imbalances.

One particularly vocal school holds that allowing the renminbi (RMB) to appreciate is the sine qua non of global rebalancing. But, as far as the US is concerned, with a Chinese trade balance in excess of USD260 billion, currency appreciation can only have so much impact.

According to one estimate, a 20 percent RMB appreciation would lead to an approximately USD90 billion reduction in the Chinese trade balance. This leaves a large Chinese trade surplus in place, around USD170 billion even before the rebound in the Chinese surplus anticipated as global aggregate demand recovers.

This media and political obsession with “currency manipulation” obliterates the fact that rebalancing requires, first, a series of difficult actions by US authorities, both fiscal and monetary, and American consumers. Balanced budgets–government as well as household–and a return to traditional money are good starts.

During a briefing ahead of Harper’s trip, spokesman Dimitri Soudas wouldn’t say whether the prime minister will broach the currency peg topic. “But it is expected,” Soudas added, “that the prime minister, in the wide range of meetings that he’ll be having, there will be exchanges related to fiscal policy.”

This final point is critical. At least as important as the currency issue is that Chinese authorities must increase and re-orient their fiscal stimulus efforts toward boosting domestic private consumption. A social safety net would go a long way toward encouraging private consumption, and it would also keep average Chinese content, not a minor consideration to a single-party, authoritarian state.

Reconciling the imbalances characterized by the “Chimerica” relationship is critical to putting the global economy on a sustainable track. This means, in short, that the US must consume less, China more. But China’s economic program, including the USD587 stimulus announced in November 2008 and implemented to great effect in 2009, to date has focused almost exclusively on developing its export potential.

The currency issue is significant: Allowing the RMB to appreciate will spur the development of a consumer economy in China–if stimulus efforts support the creation of more value-added jobs, and if there’s a social safety net to encourage private consumption.

Reestablishing and maintaining robust bilateral political and trade relationships with Asia, and China in particular, is the long-term key to growing the Canadian economy. China is already Canada’s second-largest trading partner after the US. Two-way trade totaled CAD53.1 billion in 2008. Through the first half of 2009 it stood at CAD24.7 billion, a 2.9 percent increase over the same period last year.

If the argument is that Harper’s four-year delay before meeting his Chinese counterparts caused problems for Canada, this increase suggests even a little effort will help the Great White North reduce its exposure to the US economy.

As for short-term benchmarks, look for announcements that China has conferred “approved destination” status on Canada within weeks and that President Hu Jintao or Premier Wen Jiabao will visit Ottawa.

A simple case, one we’ve been making for months here and in Canadian Edge (the place for actionable advice), is that Canada’s domestic economy is essentially sound, that it must diversify away from the US and that Asia is its demand center of the future.

Stephen Harper is off to make it happen.

Black Friday: A Retrospective

The 2008 holiday season was pitched as the Consumer’s Apocalypse, and the market seems to have priced in an economy capable of generating more than a 0.5 percent year-over-year improvement over the worst-case scenario. Although the number of shoppers was up in 2009, the amount they spent (on a per-capita basis) was down. Online surveys show that the average consumer spent USD343.31 versus USD372.57 last year.

This is further confirmation of what’s shaping up as a secular trend toward frugality, which our colleague Benjamin Shepherd discusses in the December 9, 2009 issue of Personal Finance (available online Saturday morning).

Words for the Wise

“Where is it that we have had very vocal, remonstrative theatrics with China on thorny issues where China has laid down and simply done what we want to do simply because we’ve gotten loud about it? There are not a lot of examples you can point to.” — Howard French, former Shanghai bureau chief for The New York Times, in the second part of a two-part interview about media coverage of President Obama’s recent trip to Asia. The first part of the interview is here.

The Roundup

What’s ordinarily a quiet time for financial markets turned loud and aggravating last week with the announcement that Dubai World, the state-sponsored investment vehicle of Dubai, one of the seven United Arab Emirates, had asked its debt holders to “stand still” and “extend maturities” until at least May 2010. This is further reminder that the global financial system is still on shaky ground.

At the same time, however, Canadian Edge Portfolio recommendations are announcing positive operational developments, new debt offerings on favorable terms, fully subscribed new share offerings and interesting strategic shifts. Here are the details.

Conservative Holdings

AltaGas Income Trust’s (TSX: ALA-U, OTC: ATGFF) 102-megawatt (MW) Bear Mountain Wind Park is now fully commissioned and connected to the British Columbia power grid and is generating the benefits of a 25-year energy purchase agreement with BC Hydro.

Under the Canadian federal government’s ecoENERGY for Renewable Power program, the project will receive a one cent per kilowatt-hour incentive over the next 10 years. The project also includes green attributes that AltaGas can trade or sell to third parties.

Bear Mountain–a CAD200 million project completed on time and on schedule–will produce enough energy to power most of British Columbia’s South Peace region. AltaGas Income Trust is a buy up to USD20.

Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF) concluded a bought-deal financing arrangement for CAD75 million aggregate principal amount of convertible unsecured subordinated debentures with a 6.25 percent interest rate due March 15, 2017.

The debentures will be convertible at holder’s option into 76.9231 Atlantic Power common shares per CAD1,000 principal amount of debentures, equal to a conversion price of CAD13 per share. Management plans to use net proceeds of CAD42.7 million to retire its 11 percent subordinated notes due 2016; any residue will be used to fund growth initiatives.

Atlantic exchanged its Income Participating Securities for common shares on a one-for-one basis on November 27. The common shares will be listed and posted for trading on the Toronto Stock Exchange on December 2.

Management also completed the sale of Atlantic’s 50 percent interest the 308 megawatt (MW), combined-cycle Mid-Georgia Project for net cash proceeds of approximately USD28 million. The company will record a book gain on the sale of approximately USD15 million and a tax gain of approximately USD6 million. Proceeds will be used to reduce credit-facility borrowing.

Atlantic also closed the previously announced sale of its 50 percent interest in the Stockton Project for a nominal cash payment. The company recorded a book loss of USD1.7 million in the third quarter of 2009 and will report a tax loss of approximately USD12 million. Atlantic Power Corp is a buy up to USD10.

Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF) has executed a long-term, fee-for-service contract with Imperial Oil Resources Ventures Limited to provide diluents via pipeline, storage and rail offload services for Imperial’s Kearl oil sands project.

Keyera will transport diluent by pipeline from Edmonton to a delivery pipeline north of Fort Saskatchewan, Alberta, for delivery to the Kearl site near Fort McMurray.

Management expects phase one of the Kearl project, scheduled to come on stream in late 2012, to generate operating cash flow of CAD10 million to CAD11 million; phases two and three could take that figure to CAD16 million.

Expansion of its infrastructure in the Edmonton/Fort Saskatchewan area will allow Keyera to contract with other parties to utilize excess capacity. Construction of the new pipeline contemplated by the Imperial deal will also open up further opportunities for Keyera in the diluent market. Keyera Facilities Income Fund is a buy up to USD22.

Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQRF) has sold CAD50 million principal amount of 6.5 percent convertible unsecured subordinated debentures due December 31, 2016, to an underwriting syndicate. If an over-allotment option is exercised the offering will generate CAD57.5 million in gross proceeds. Macquarie Power & Infrastructure Income Fund is a buy up to USD8.

RioCan REIT (TSX: REI-U, OTC: RIOCF) completed an offering of approximately 6 million trust units at CAD18.35 per unit for gross proceeds of about CAD111 million.

The REIT also announced that it expects to close the CAD166 million (RioCan’s approximately 60 percent interest in the CAD280 million total purchase price) acquisition of four retail shopping centers before the end of the year. Three of the four properties are anchored by Wal-Mart (NYSE: WMT) stores. Buy RioCan REIT up to USD18.

Aggressive Holdings

Penn West Energy Trust (TSX: PWT-U, NYSE: PWE) sold heavy oil properties in Alberta and Saskatchewan to Husky Energy (TSX: HSE, OTC: HUSKF) for an undisclosed price. The assets currently produce more than 6,000 barrels per day and contain as much as 20.5 million barrels of reserves. Penn West Energy Trust is a buy up to USD20.

Provident Energy Trust (TSX: PVE-U, NYSE: PVX) completed the sale of its heavy oil and natural gas assets in the Lloydminster area on the Alberta/Saskatchewan border to Emerge Oil & Gas for total consideration of CAD85 million; proceeds include CAD68 million in cash and CAD17 million in equity.

Provident also announced that it has reached agreement with Dow Chemical Canada to purchase a commercial storage facility near its existing Sarnia operations. The sale price wasn’t disclosed. The 1,000-acre site has an active cavern storage capacity of 12.1 million barrels, consisting of 5 million barrels of hydrocarbon storage and 7.1 million barrels of capacity that’s currently used for brine storage. The facility also has 13 pipeline connections and a small rail offloading facility. The transaction is expected to close in early 2010. Provident Energy Trust is a buy up to USD7.