In his 1933 inauguration speech, then United States president Franklin D. Roosevelt suggested that “the only thing we have to fear is . . . fear itself.”
This phrase might have been better suited for Todd Hirsch’s presentation to the Rotary Club of Red Deer.
ATB Financial’s chief economist downplayed the adverse impact of sub-$50 oil, warning instead that Albertans’ reaction to the low price is a greater danger.
“I’m not saying we should ignore what’s happening,” said Hirsch. “I’m not saying we shouldn’t be prudent and make wise decisions, because it is going to be a challenging year, there’s no way around that. But we should not worry too much, because once we do, irrational decisions start to happen.
“The biggest threat is not $50 oil, the biggest threat is fear and irrational decision-making.”
2015 will get off to a difficult start, acknowledged Hirsch, with lots of layoffs and few job opportunities for university and college grads in the energy sector. ATB Financial is forecasting provincial GDP growth of between one and two per cent this year.
But other big industries like forestry, agriculture and tourism are poised to thrive. They’ll benefit from cheap fuel prices, the low Canadian dollar and improved access to labour, said Hirsch.
An 80-cent loonie is painful for import companies and consumers, and might wound our national pride, but the U.S. dollar is out-performing most currencies in the world, pointed out Hirsch. He expects the loonie to drop another nickel, and then rebound to 80 cents by year-end.
The high household debts of Canadians is troubling to many people, including officials with the Bank of Canada, acknowledged Hirsch.
“Anytime you’ve got the words ‘debt’ and ‘record high’ in the same sentence, there is a concern there, absolutely.”
But with interest rates at their current low levels and unlikely to increase for some time, debt servicing costs are very low and forestall the need for panic, he suggested.
As for the low oil prices, Hirsch expects the numbers to stabilize by late spring or summer and then start to climb.
He explained that Saudi Arabia and other OPEC countries have been trying to squeeze low-cost producers by keeping output high. But some OPEC members, including Venezuela, Nigeria and Libya, have relatively high production costs themselves and will likely push for a relaxation of this strategy.
“So we see it probably climbing back up a year from now closer to that US$65 or $70 a barrel for WTI.”
Anyone with a propensity for worrying would do better to look beyond Alberta and Canada, said Hirsch.
Russia, for example, is in a “very troubling situation,” he said. Pushed into recession by low oil prices and international sanctions, it could impact global financial markets, said Hirsch.
“I do think that Russia will be a source of concern in 2015.”
Europe had stabilized from the crisis situation it was in a few years ago, but the recent election of an anti-austerity government in Greece is cause for worry, he said. There’s a possibility the embattled Mediterranean country could leave the European Union, or at least abandon the Euro, with uncertain consequences.
“We will probably see some economic instability coming from Europe in 2015.”
The moderation of growth in China might also be a worry, said Hirsch, although the Asian country’s leaders still have a variety of fiscal and monetary tools at their disposal.
Ultimately, Hirsch urged his Rotary audience to look beyond the doom and gloom often emphasized by members of the media.
“When we start to worry as a province, or when individuals start to worry, bad things tend to happen.”