American politicians may be dancing awkwardly toward the fiscal cliff, but there’s still reason to be optimistic about the financial future, say a pair of Alberta economists.
On Thursday, U.S. stock markets were down for a fourth consecutive day and consumer confidence at its lowest level since August, as Democrat and Republican leaders remained stalled in their efforts to prevent tax increases and spending cuts that will take effect after Dec. 31.
“I don’t perhaps share the same concerns as many do,” said Michael Drotar, vice-president treasury with Edmonton-based Servus Credit Union.
“Common sense would suggest that they’ll come to some sort of an agreement.”
Patrick O’Meara, a finance and business instructor at Red Deer College, is also looking for a compromise.
“I think all sides in the United States realize — Republicans, Democrats, independents — that if they don’t do something, they will only have to bite the bullet and it’d be an even worse situation in a few years from now.
“But in the long run, if they can get themselves and get their political act together, the economy can do well.”
Drotar agreed that there are economic indicators that suggest improved fortunes lay ahead for the Americans, if they avoid that cliff. Specifically, U.S. housing and job numbers have shown renewed life in recent months.
“I’m actually quite optimistic.”
He’s also pleased with what he’s seeing in Canada, and especially in Alberta.
“We’ve really weathered these past few years very well.”
Drotar is expecting oil to approach the $100 mark this year, helped by that improved U.S. economy and growth in China that’s squelched fears about a hard landing for the high-flying Asian country.
O’Meara also believes Alberta is going into 2013 on a positive note.
“I think Alberta, as long as oil prices stay where they are, will be fine. There’s no indication that we’re going to see a real downward movement in oil prices, especially if Europe and the United States and China collectively get their economic houses back on track.”
The U.S., in particular, is key to Alberta’s — and Canada’s — fortunes, said O’Meara.
“It will really depend on the economic growth that we get out of our neighbour, who’s 10 times larger than what we are, and we’re starting to see that.
“That’s good news for us in the long run.”
Drotar cautions that if the U.S. does tumble off the fiscal cliff, the consequences would be dire. Equity markets would get “hammered,” he said, and the country could lose two per cent or more of its GDP growth.
Canada would feel the shockwaves.
“You’d definitely see commodities drop across the board, including oil prices.”
But hopefully, things won’t come to that and a deal with be reached, said Drotar.
“I don’t think anybody cares what it looks like, as long as they’ve got something.”