While speaking in Red Deer on Thursday evening, ATB Financial senior economist Todd Hirsch speculated as to what Canada’s real GDP rate would be when Statistics Canada announced the figure the next morning.
He guessed something in the 1.2 to 1.5 per cent range — calculated on an annualized basis — which Hirsch acknowledged would be “pretty weak.”
The truth was revealed about 12 hours late, when the national statistical agency reported that annualized growth in the third quarter was just 0.6 per cent.
Hirsch, who was presenting at Central Alberta Economic Partnership’s fall general meeting, said the Canadian economy’s sluggishness can be attributed in large part to problems in Central Canada’s manufacturing sector. And with Americans not in a buying mood these days, the outlook for 2013 isn’t much better.
Travel a few thousand kilometres west, however, and the picture brightens considerable.
“You’d have to look pretty hard in the industrialized world at the moment to find an economy that is as nicely balanced — the labour market is balanced, real estate is balanced — as Alberta and Saskatchewan,” said Hirsch.
Farm cash receipts are on track to set a new record for 2012, and retail activity in Alberta set records in July, August and September. But the province’s economic fortunes depend on another industry.
“Energy is still, without question, the dog that wags a lot of tails in the province, either directly or indirectly.”
At about $88 a barrel, crude oil is still priced high enough to support existing drilling programs and projects in the oilsands. But that number could tumble if Europe’s financial system collapses or, even worse, the slowing Chinese economy suffers a “hard landing” down to a two or three per cent growth rate.
“Then all bets are off for global commodity prices, including crude oil,” said Hirsch. “And this province could find itself in a much different situation.”
However, he doesn’t think Europe will unravel to that extent, and he believes the Chinese government has enough monetary and fiscal tools at its disposal to prevent a crash there.
That’s not the case in the United States, where the Federal Reserve has slashed interest rates to nearly zero and is now into its third round of quantitative easing — the process of injecting money into the economy. Looming on the near horizon is a host of federal budget cuts and tax increases that are scheduled to take effect early next year: the “fiscal cliff.”
“If they can’t arrive at a consensus of how to lift their debt ceiling once again . . . the U.S. economy will go flying off the fiscal cliff Thelma-and-Louise style,” said Hirsch.
A big challenge for the U.S. economy is an unemployment rate of around eight per cent, he said. And many working Americans are stuck in part-time jobs or in positions that don’t fully utilize their skills.
On a brighter note, said Hirsch, the U.S. housing market has been picking up momentum. The resulting price gains could encourage consumers to spend more, which in turn might prompt corporate America to use some of the cash it’s sitting on to increase production.
As for Europe, Hirsch noted how central banks there have also exhausted their arsenal of policy weapons, and countries are bickering over the desirability of further austerity measures.
Although Alberta’s economy has slowed from a 2011 rate of about 5.1 per cent real GDP growth, Hirsch is not concerned. In fact, he thinks slower growth is desirable because it adds an element of stability.
“Faster is not always better.”