Volatile.
If one word had to be used to sum up Derek Burleton’s assessment of the economy, that would probably be it.
The TD Bank Group vice-president and deputy chief economist produced plenty of choppy graphs during a presentation at the Alberta Beef Industry Conference in Red Deer on Friday to illustrate how unsettled things are in Canada and abroad.
“In the last five or so years, it’s been unprecedented in terms of the amount of financial volatility we’ve seen,” said Burleton. “And it’s still very much a challenge.”
Much of the current uncertainty can be traced to Europe, where members of the European Union are scrambling to negotiate a bailout package to prevent Greece from defaulting on its debt obligations. If they’re not successful, the repercussions could be dire for banks and other countries in Europe and beyond, he said.
“It’s conceivable that Greece and potentially Portugal could leave the Euro, and if that happens we get into some uncertain circumstances.”
Burleton thinks Greece will probably end up leaving, but he’s optimistic the consequences won’t be as severe as some might fear.
Central banks have already taken action to mitigate the impact, he explained, and there are encouraging developments in the United States: improved employment numbers and signs the housing market is bottoming out. Challenges do remain, said Burleton, but the U.S. economy is now projected to grow by 2.5 to three per cent.
Meanwhile, fears that the Chinese economy is poised for a crash have lessened. Growth has slowed gradually to a more sustainable level of about nine per cent.
Europe isn’t a huge export market for Canada, but a collapse there would hurt financial markets on this side of the Atlantic, said Burleton.
And a high loonie will continue to impact exports to the U.S.
“The U.S. used to drive 35 per cent of our GDP,” he said. “That’s now down to 20 per cent in terms of exports to the Untied States.”
Canadians have reason to worry about their own debt levels, said Burleton.
“Our debt-to-income ratios are higher than the United States, as they’ve been forced into selling a lot of their assets through housing foreclosures.”
One positive is the corporate sector, where balance sheets are relatively healthy, said Burleton. Western Canada is benefiting from strong commodity prices; Central Canada has been hurt by manufacturing cuts and reductions in government spending.
“When you net everything out for our economy here, you’re looking at pretty slim growth.
“It’s not going to be a great period, but we’ve done reasonably well.”
Burleton anticipates continued investment in Canada’s resource and agricultural sectors. He also thinks commodity prices, including for ag products, will remain strong as a result of demand from emerging countries like China and India.
“Those markets are now 50 per cent of the global economy and they’ll probably be about 70 per cent in the next 25 years, the way the trends are shaping up.”
But, added Burleton, factors like global weather patterns will likely mean continued ups and downs for many ag commodities.
Oil should stay in the $100-range, unless geopolitical events — like Iran disrupting tanker traffic through the Strait of Hormuz — affect prices.
The Canadian dollar should remain close to par, and settle out at about US90 to 95 cents long term, said Burleton.
“In the last five years, the annual swings in the Canadian dollar have averaged 10 to 15 cents a year,” he noted, contrasting this to previous periods when currency fluctuations were minor
“Volatility is, I think, a safe forecast,” summed up Burleton. “We are in an unusually high period of volatility.”
hrichards@www.reddeeradvocate.com