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Servus forcasting better economic prospects

Servus Credit Union’s vice-president treasury has delivered a bit of Christmas cheer in his latest economic forecast.

Mike Drotar said 2014 is shaping up to be a “very strong year,” with the outlook for 2015 even brighter.

“I feel pretty good about everything.”

Drotar’s forecast is particularly upbeat in the case of Alberta, where he expects economic growth this year to hit three per cent, and climb to 3.8 per cent in 2015.

The long-term economic strength of the province will be influenced by the success of efforts to develop pipelines that can carry oil out of the Alberta, including the proposed northern leg of the Keystone XL line.

“It’s going to take a long time to build it, but definitely that would be a huge positive boost for Alberta, and Canada,” said Drotar, expressing optimism that the U.S. government will approve the project.

He anticipates that the price of West Texas intermediate crude will average above $98 next year, and even sees reason to be positive about natural gas, noting that the price of the energy commodity has improved.

“With the global economy doing better, I think that will be good for natural gas.”

As Alberta’s economy heats up, skilled labour shortages will become increasingly evident, noted Drotar.

The provincial unemployment rate is already well below five per cent and appears headed toward the four per cent mark, or lower, he said.

“We’re approaching the levels that we did pre-recession.”

The labour problem has been blunted somewhat by the migration of workers to Alberta from other provinces, but this source could dry up as job prospects improve elsewhere in Canada, said Drotar, who is based in Edmonton.

He’s expecting Canada’s GDP to finish 2013 up 1.8 per cent, and climb a further 2.6 per cent next year.

Drotar thinks the loonie could drop to US90 cents in 2014, with continued low interest rates and soft commodity prices pushing the currency down.

Meanwhile, the U.S. economy continues to gain strength, with anticipated growth of 2.9 per cent next year and three per cent in 2015. Drotar pointed to the American housing sector and labour market as favourable indicators in this regard, as has been the S&P 500 stock market index — which had gained 26 per cent this year as of mid-December.

Also encouraging is the fact the U.S. banking system appears to have stabilized.

“Banks are obviously key to the economy, because of their lending activity,” explained Drotar.

The massive American government debt remains a concern, although low interest rates have kept the cost of servicing it manageable.

“If rates go up substantially, then it will be a huge impact,” said Drotar, stressing the importance of the U.S. government addressing the issue soon.

The challenge it faces, he added, is how to reduce spending and/or implement tax reform without crippling the economic recovery.

Globally, Drotar is pleased to see some economic growth, albeit it very slight, in the Eurozone.

“Flat growth is better than minus four per cent,” he pointed out.

As with the United States, Europe must walk the fine line between tackling its debt issues and encouraging economic growth, said Drotar.

Meanwhile, China is expected to maintain an annual growth rate of seven to eight per cent in the medium term, which should help pull the global average to just above four per cent over the next three years.

“It’s not over-the-top growth, but I think we’ve built a base — generally speaking — and I think 2013 was the year where it’s sort of getting a firm foundation.”



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