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Through a Crystal Ball
Through a crystal ball, darkly
By Gary Lamphier, edmontonjournal.com Comments (1)
Edmonton Journal business columnist Gary Lamphier.
Photograph by: Greg Southam, edmontonjournal.com
More than two years after the world was hit with the first global recession in 70 years, the outlook is as murky as ever.
Friday's depressing U.S. jobs report shows just how tough it is for economists to get an accurate read on what lies ahead.
U.S. payrolls added just 39,000 jobs in November -- a mere 75 per cent below the consensus estimate -- boosting the unemployment rate to 9.8 per cent. No wonder most Americans think their country is still stuck in the ditch, no matter what the experts say.
More to the point, if economists can be that far off in their monthly guesstimates, why pretend they can see a full year or two ahead? Clearly, they can't. There are just too many wild cards in play.
After a string of upbeat reports on everything from retail sales to manufacturing, Friday's U.S. jobs figure was a brutal reminder that the world's largest economy remains on life support.
In fact, any honest tally of the U.S. national debt -- one that includes the liabilities of state-owned Fannie Mae and Freddie Mac -- would show the country's finances are mired in just as much fecal matter as Portugal, Ireland or Spain.
All of which helps to explain why the mood at this week's ESNA (Economics Society of Northern Alberta) 2011 outlook conference was far from festive. It felt more like a gathering of Toronto Maple Leaf fans, hunkering down for another painful season.
"In December 2010 it's harder to get a clearer read on the economy than it was even a year ago. The indicators are pointing in a lot of contradictory directions," Todd Hirsch, ATB Financial's senior economist, told attendees.
Eric Lascelles, TD Securities' macro strategist, was equally blunt: "I've got a pretty grey economic outlook for the world economy. There's a lot of uncertainty out there, and it's not going away anytime soon. We're still in the mess."
Jayson Myers, CEO of the Canadian Manufacturers & Exporters, said that despite the impressive gains in North American stock markets since March 2009, few are sharing in the upside. "We have a financial economy that has become decoupled from the real economy of producing goods and (engaging in) trade," he said.
Since U.S. politicians are unwilling to face reality -- witness the failure of the Obama government's debt commission to come up with even a timid deficit reduction plan -- Myers figures the Federal Reserve will continue to print money. "In my mind, that's one of the biggest risks we face today."
Here's a synopsis of some of the other key observations and insights gleaned from speakers at the ESNA's annual one-day conference:
TD's Eric Lascelles insists Canada's housing market is not in "bubble" territory, although average prices may be 10 per cent higher than justified. "We do see it slowing, but we don't expect catastrophic consequences," he says.
Meanwhile, Canada is likely to remain attractive to foreign investors, who bought a record $110 billion of Canadian government bonds over the past year, he says. With its rich resource base, strong currency and decent fiscal position, Canada is viewed as a safe haven.
"Our clients are interested in Canada right now. They have confidence they're going to be able to get their money back."
ATB Financial's Todd Hirsch says Alberta's economy should do fairly well in 2011, at or near the head of the pack among Canadian provinces. The oilsands will continue to be a key driver of activity, with oil prices expected to hover between $70 US and $85 per barrel, while the natural gas sector will suffer from oversupply and low prices.
Globally, Hirsch says Spain will be a key country to watch next year. If it succumbs to the same debt woes that have plagued much smaller nations like Greece and Ireland, it could cause havoc throughout the European Union, he warns. On the flip side, Hirsch says he's particularly bullish on India over the coming decade.
CME chief Jayson Myers says the Canadian economy would still be in recession if not for the billions of dollars invested in Alberta's oilsands in recent years.
Now, with government stimulus programs ending and consumers "maxed out," he says Central Canada's manufacturing sector needs to move away from "commoditization" and into more specialized, high-value products if its wants to be globally competitive.
"In my view that is the future of competitive manufacturing in Canada," he says. "Today, companies don't compete, entire supply chains compete."
Ted Morton, Alberta's minister of finance and enterprise, offered a fairly sunny view of the province's fiscal position. Although the projected budget deficit for this year recently jumped to $5 billion from $4.7 billion -- after more than $500 million in emergency spending -- Morton says the province will keep a tight lid on spending, and now employs 3,100 fewer public sector workers than it did a year ago.
While Alberta's resource revenues have plunged sharply since 2008, when oil and gas prices peaked, Morton says the government has no plans to introduce a new provincial sales tax -- a tax he dubs the "political suicide tax."