Servus touts signs of optimism

An economist with Servus Credit Union sees some encouraging trends in the numbers he’s been monitoring lately.

An economist with Servus Credit Union sees some encouraging trends in the numbers he’s been monitoring lately.

Mike Drotar, vice-president treasury with the Edmonton-based financial institution, said Monday there’s reason for optimism in Alberta, Canada and the world.

“On balance, I feel really good about it.”

In this province, improved energy prices should push growth to three per cent this year and 3.8 per cent in 2014, said Drotar.

He expects the appetite for oil in export markets to increase, especially with the economies in Europe and the United States showing signs of renewed vigor.

“The States is picking up really well, specifically the labour market and housing prices.”

Drotar acknowledged that energy prices are influenced by unpredictable geopolitical events, and that the future value of Western Canadian select crude could be affected by political decisions regarding pipeline development. But he believes the recovering U.S. economy should increase the need for new north-south energy transportion links.

“The demand for oil in the States is going to skyrocket. I think they’ll need the pipelines and I think eventually that’s going to happen.”

Demand for oil will also come from China, where Drotar expects the economy to grow at rate between seven and eight per cent in the medium term.

“Don’t underestimate the demand from China,” he said, adding that the same holds true for other emerging markets. “Demand is going to way outstrip supply.”

Drotar downplayed concerns about the Alberta deficit, which was projected to exceed $6 billion this fiscal year.

“Manageable debt levels, rather than none, support economic growth if invested prudently in infrastructure and are not a negative,” he wrote in a market outlook report.

What could be a worry is an unemployment rate that continues to trend downward, said Drotar.

“We’ll end up having, over the next couple of years, the same challenges we did at the peak of the boom.”

For Canada as a whole, Drotar is looking for a more modest growth rate of 1.8 per cent this year and 2.6 per cent for 2014.

South of the border, he’s projecting growth of 2.9 per cent or even higher next year.

In addition to the employment and housing indicators, Drotar is encouraged by the commitment of the federal reserve to continue supporting the economic recovery through its policy tools.

Another positive indicator has been the strength of U.S. equity markets.

Since 2009, Drotar pointed out, the S&P 500 Index has increased some 145 per cent.

The Toronto Stock Exchange hasn’t exhibited that strength, which he attributes to resource and precious metals prices hurting the Canadian exchange.

The massive government debt in the United States is a worry, said Drotar. But he pointed out that the interest costs on that debt are far less than they were three decades ago, and that a robust American economy could address the current problem.

But, added Drotar, it’s important the U.S. government begin taking steps to get the situation under control or it could spiral out of hand.

“If they aren’t making progress, it’s time to build a bunker,” he said of the likely fallout of that in the financial markets.

A year ago, there were fears an unravelling of the economies in Europe and China could drag the rest of the world down with them. Now, said Drotar, those concerns appear unfounded.

“Put all these things together and it certainly doesn’t look as bleak as it did a year ago — or at least the risk isn’t there.

hrichards@bprda.wpengine.com

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