Scotiabank’s chief economist is giving the federal government a thumbs-up for the belt-tightening budget it tabled on Tuesday.
Warren Jestin, who was in Red Deer yesterday, said balancing the books and reducing debt should be “Job 1” for the Canadian government — and its provincial counterparts.
“Countries with big debts and big deficits ultimately have to raise taxes, which reduces their competitiveness and cuts spending, which reduces the quality of their educational system, their health-care system and their infrastructure.”
Operating in the black would give Canada a strategic advantage over other countries, said Jestin during a presentation at a Rotary Club of Red Deer luncheon at Red Deer College.
“I was very encouraged, in that budget, that rather than delivering a lot of glitzy things we tended to end up with a story that stuck to the message of restoring fiscal prudence and sustaining fiscal prudence in this country. When was the last time you heard the president of the United States say he was going to balance the books?”
Jestin also offered a bright economic outlook for Western Canada, particularly Alberta and Saskatchewan. He noted that Alberta’s population — which consists of many young and skilled workers — grew by more than three per cent last year, while Ontario’s and British Columbia’s increased by just one per cent.
One determinant of Alberta’s future prosperity will be whether pipeline projects like Keystone XL are approved, said Jestin. That in turn is dependent on politics.
He suggested that U.S. President Barack Obama’s current focus is to gain a majority in Congress when mid-term elections are held in November. And that will likely influence his decision on Keystone, with the reaction of voters in each state a key consideration.
“My gut feeling is he’ll probably defer it simply because he doesn’t know the consequences or the outcome politically on actually signing on the dotted line. But I think it’s going to be signed.”
Economic forecasting is a challenging endeavor these days, said Jestin, because there are so many factors are at play — some of which are unprecedented.
For instance, China’s role in the global economy is transforming from seller to buyer. He explained that the Asian powerhouse needs commodities for things like steel production, and has also developed a huge appetite for consumer goods.
China has become the world’s biggest auto buyer, as well as the number 1 market for luxury goods, said Jestin. In the case of tourism, it’s now the biggest spender, having surpassing the United States and Germany in recent years.
Also making it difficult to predict the future are technological developments, he said, pointing to the unexpected impact that advances in fracking and horizontal drilling have had on energy markets.
“Five years ago, we exported $35 billion worth of natural gas to the U.S.,” said Jestin. “And last year it was down to $12 billion.”
In fact, North America has become a low-cost energy area that’s attracting some manufacturers back in a movement called “re-shoring.”
Jestin sees plenty to be optimistic about in the United States, where consumer confidence and spending has been boosted by improvements in the labour, housing and equity markets. Even U.S. government debt is moving in the right direction, having dropped to $680 billion last year after four years in excess of $1 trillion.
Europe is slowly pulling itself out of the recessionary hole it’s been in, although Jestin worries that high youth unemployment in countries like Spain and Greece is creating a “lost generation.”
The proposed Comprehensive Economic and Trade Agreement between Canada and Europe has the potential to help Canadian businesses, said Jestin, as do the federal government’s efforts to strike trade deals with other counties.
“We still sell 74 per cent of our exports to the U.S., but if you’re looking at growth, rather than levels, you will see the growth opportunities in many other parts of the world,” he said, noting that less than 10 years ago 84 per cent of Canada’s exports were going to our southern neighbour.