Analysts weigh in on a struggling Canadian economy at Calgary Economic Outlook 2016
While the majority of Canadian provinces are expected to see economic growth in 2016, Alberta is predicted to shrink somewhat due to the recession, likely until the end of this year.
However, several financial experts who spoke at Calgary Economic Development’s Economic Outlook for 2016 predict the province should actually see slow growth for the next year.
Todd Hirsch, chief economist of ATB, Glen Hodgson, chief economist with Conference Board of Canada, and Stephen Poloz, governor of the Bank of Canada, gave their predictions on the state of the local, Canadian and global economies for the coming year. Mary Moran, CEO of Calgary Economic Development, hosted the event and also chimed in on the Calgary economy.
Here are the six takeaways from the Sept. 21 event:
1. Canada’s head banker is confident about the Canadian economy despite low natural resource prices
Speaking about the country’s rich natural resources, Stephen Poloz, the governor of the Bank of Canada, put it this way: “It is better to have some of this stuff than have none.”
He added Canada is the only major G7 commodity exporting economy. However, only 20 per cent of all Canadian industries depend on natural resources.
The Canadian quarterback of interest rates said the national economy is strong enough to weather low oil and other commodity prices.
He said industries that are dependent on natural resources are changing their operations to deal with low prices, adding, "Canada has seen this movie before."
2 Fat cat high wages take a toll on Alberta businesses
The ATB's Todd Hirsch said in addition to low oil prices, high wages are hitting the provincial economy hard.
High wages and low cash flow have been especially tough on the oil, pushing companies to layoff staff, and try to balance the books.
According to a presentation at the event wages across Canada increased over 29 per cent in the past 10 years. However, in Alberta they increased by 48 per cent, and even more so — 56 per cent — in Alberta’s oil and gas sector.
On a brighter note, the ATB economist said the Alberta economy is still at full employment despite the layoffs. This is because companies who were short of staff, such as transportation companies, are now hiring people formerly employed in the energy industry.
“The recession has to be seen in perspective,” said Hirsch, who said this year there will be a small recession — around one per cent — a small number compared to the 20 per cent real growth in Alberta’s economy the last five years.
3. A thriving American economy could revive Canadian "dead money."
Glen Hogdson, with the Conference Board of Canada, said in a presentation the bright news is the U.S. economy, which is expected to grow three per cent in 2015, and 3.1 per cent in 2016.
Americans are consuming more, creating more jobs, building more houses and buying more cars since the 2008 recession.
Hodgson said a growing American economy will buy everything Canada can sell thanks to a low loonie, especially in the construction sector.
Canadian companies have $550 billion in “sleeping cash” said Hodgson.
Corporations have stopped investing and this has affected growth. “The opportunity to sell to Americans might be the key for Canadian companies to invest,” said Hodgson. “We will be able to export our way into growth.”
The only concern with the U.S. is that companies are not investing a lot due to a strong American dollar, which makes American products expensive in the global market.
4 The rules for the oil game have changed
Hodgson also said the "the rules of the oil game have changed, adding that he thinks he will never again see in his career a barrel of oil in the $100-range.
Saudi Arabia doesn’t want to be the country that controls world oil prices Hodgson continued. The Saudis will not cut production to keep prices up, instead leaving that role to U.S. oil fracking producers.
Hodgson predicts at the end of 2015, oil will be in the $50 per barrel range, and could be in the $60-range by the end of 2016. However, he predicts a bumpy ride.
5. Low growth in Canada is the "new normal."
Hodgson called the weak Canadian performance the “new normal,” adding that a two per cent GDP growth per year will become the usual rate for years to come, unless Canada finds new ways to increase productivity and innovation. He said this won’t happen as long as business investment is anemic across the nation.
Two other deciding factors in the future of the Canadian economy will be the changes in the U.S. interest rate and its influence in the value of the loonie and the price of oil.
Hodgson added the GDP growth for this year will be 1.5 per cent across Canada. Alberta will contract one per cent followed by Newfoundland and Saskatchewan. However, for 2016, he predicted Alberta will rebound to a growth of over 1.5 per cent while Newfoundland will be the only province to contract – by 1.5 per cent. The coming year he projected B.C. will be the economic engine of Canada growing 3.5 per cent, according to a presentation Hodgson made for the event.
6. “Purposeful diversification” is what we need for a strong Calgary
For Mary Moran, the big question for Calgary’s future is how flexible the local economy can be.
The CEO of Calgary Economic Development said the strength of Calgary’s recovery depends on how much local companies can diversify.
“Advanced sustainable growth through purposeful diversification” is what the city needs to thrive,” said Moran. In other words, local energy companies need to find new methods of production, access to new markets, and use new sources of energy.
Moran said for Calgary to be successful, the city needs to become a global exporting centre of knowledge. Industry will have to sell others its expertise in finance, science, and law while innovating in other areas like renewable energy.
“If we truly we want to own the position of being a global energy center we need to be agile and secure our position in renewals,” she said. Disruptive innovation in the energy sector will happen in the future, and it is better if it happens here than in other place, said the CEO.
Thumbnail courtesy of Iain Hector/Noun Project/ http://creativecommons.org/licenses/by/3.0/us/legalcode
- By DANIEL RODRIGUEZ