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22nd Economic Outlook 2011: Road to recovery leads to new economic world

Thu Jan 13, 2011 07:15 AM - Thu Jan 13, 2011 10:30 AM
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Economic Outlook 2011
L-R: Michael Levy, Warren Jestin, Jason McLean, Barry Appleton and Helmut Pastrick. See photo gallery and presentations.

By Daniel Pi
Venue: The Fairmont Hotel Vancouver

Scotiabank chief economist Warren Jestin launched The Vancouver Board of Trade’s 22nd annual Economic Outlook Forum as keynote speaker with an optimistic announcement stating the Canadian and U.S. economies are beyond recovery and now in a phase of “renewed expansion.”

However, he cautioned that people should not expect a return to the booming times before the 2008 economic collapse.

“We are on the road to recovery, we’re just not going back to where we were before the recession,” Jestin told the crowd of nearly 500 attending the Board of Trade’s first event of 2011.

The forum, sponsored by Central 1 Credit Union and the Certified General Accountants Association of British Columbia and supporting sponsors London Air Services, Odgers Berndtson, Pacific Blue Cross and Scotiabank, also featured a panel of industry experts who weighed in on topics covering the provincial economy, the labour market and U.S. politics.

While Canada and the U.S. are past the recovery phase, Jestin said the growth rate is still predicted to be about 2.5 per cent comparatively while China, Indian and Brazil are expecting growth rates at 9 per cent, 8 per cent and 5 per cent.

Jestin called on businesses to adopt new strategies to tackle new markets in order to take part in the tremendous shift in the global economy from developed to emerging nations.

“If you follow strategies that seemed to work well before the recession began in your business activities . . . you will probably be following a losing strategy,” Jestin said. “The core message here is in both good years and bad years the emerging world is outperforming the developed world by a very substantial margin.

“The engine of growth has shifted to the emerging world . . . in the next decade the growth is going to be in these new behemoths.”

He added what has changed is that many of these emerging markets have populations with a burgeoning income. The result will be growth driven by domestic demand, and that’s something Canada can take advantage of by shifting exports to the new markets.

After presenting on the global outlook, Jestin turned his attention to the national economy and the fate of the provinces.

“We did not have a domestic recession, we had an export recession . . . and the export recession was because the Canadian dollar was going up at a time when the U.S. market . . . was very, very soft,” Jestin said.

Different regions in Canada will also experience different levels of growth, he said. Resource heavy provinces can expect to lead in performance while those oriented to the U.S. market, such as Ontario with its auto industry, will lag behind.

Despite the optimistic outlook, Jestin said a long term challenge for Canada and the other nations will be dealing with the aging demographics. Jestin said government must focus on improving the average skill level for Canadians because of the upcoming skills shortage.

“We need people who can do things, and we cannot get them from abroad,” he added.

Panellists:

By Terry Hadley

Helmut Pastrick, Chief Economist, Central 1 Credit Union

Pastrick predicted moderate overall growth for British Columbia in 2011, with real GDP expanding 2.9 per cent. Indicators of growth include employment returning to pre-recession levels and the rise in housing sales in the last five months up to December 2010. “This is a positive sign – a return to consumer confidence,” Pastrick said.

Pastrick identified forestry and logging as the fastest growing sector, followed by wood products manufacturing; construction; transportation in view of increased trade, especially with Asia Pacific, and retail/wholesale trade, reflecting increased consumer spending.

Michael Levy, Business Analyst, CKNW Radio and CORUS Radio Network

The western provinces have been predicted to lead growth in Canada, but Levy was not entirely optimistic.

“We’re going to get better, but it’s going to be a bumpy road getting there,” he said.
Levy emphasized that despite Canada faring better than others during the recession, economies are interdependent on a global scale.

“I find what’s going on in Europe scary. I find what’s going on in the U.S. very scarey,” he said, singling out debt as the key to the world’s economic problems.

Analyzing Europe, Levy demonstrated how countries have exhausted their own internal borrowing markets and have had to borrow further afield, with no hope of paying back the debt. This then bankrupts the wealthier countries who lent the money in the first place.

Many European countries continue to show negative growth and unemployment remains high (12.5 per cent in Greece; 13.5 per cent in Ireland; 11 per cent in Portugal).

“You cannot grow when your people are not working,” Levy explained. “They can’t pay back the debt so they cannot  possibly make their way out of this malaise.”

So will the Euro crash? Levy believes it will and likewise, there is not much hope for the U.S. For while Europe is attempting to cut back, albeit resulting in civil unrest and riots, the U.S. lacks a culture of “making do” and does not want to take the “tough measures.” Levy reported that as of the night before the event, U.S. debt stood at over $14 trillion – an average debt of $45,000 per American, and rising by $4.17 billion every day. “It’s unsustainable,” said Levy, concluding: “I don’t think we can hang our future trade on the U.S.”

However, Levy believes Canada’s commodities and natural resources will stand in good stead, and will be the “backbone of the growth externally for Canada” because “what we’ve got, the rest of the world wants.”

While the U.S. will come back, it will no longer be the backbone of the Canadian economy, Levy said. “You can’t keep borrowing and spending; it’s not sustainable and that’s what the U.S. is doing. We can’t rely on them to be the backbone of the economy.”

Levy predicted Chinese currency will eventually be the reserve currency of the world, and said B.C. is in a good position to rise up to the challenge. “Our economy is shifting to the east,” he said. ‘And in B.C., we are the Pacific Gateway.”

Barry Appleton, Managing Partner, Appleton & Associates International Lawyers (Washington, D.C.)

The Vancouver Board of Trade is the only Canadian business organization who has a representative on the ground in Washington, D.C.,” Appleton told the audience in his position as The Board’s honorary representative and special correspondent, Washington, D.C.

Giving an insider’s sweeping view of the political scene, he said it was especially important now as “nothing is normal in Washington” since the 2010 U.S. elections.

Appleton described how despite controlling the Senate, the Democrats have now lost the 60-vote “super majority,” so are unable to pass any significant or controversial legislation in areas such as health, the environment and climate change. 

In his analysis, Appleton described how changes in economic advisors and the chief of staff will result in Whitehouse reaching out to the Republicans in a bid to get anything through.

On the other side, the Republicans have their own issues with the Tea Party; feeling they need them to survive but having to move more to the right to do so, which will in turn lose them “centre” voters. This will force Obama’s administration to fill that gap and move more to the centre in order to take the Senate.

“This shift in politics in Washington, D.C. will define what’s going to happen in Washington, D.C. for the next two years,” Appleton said, and the economy will not benefit.

The focus of both parties will be solely on taking the Whitehouse in 2012, and attempts to pass legislation will reach “absolute deadlock,” especially when it comes to controls on spending – never good just before an election. 

“They can’t control the beast,” Appleton said.

However, he is optimistic over Canada-US. relations. He described how The Board worked for years on promoting the implementation of the Nexus Lane, and on other cross-border issues, and spoke of a new draft Perimeter Agreement not yet made public. The new agreement proposes just one customs inspection at the first point of entry into North America. For example, a shipment arriving by sea would no longer be held up at the second land border when moving on by truck into the U.S., having already gone through inspection at the Port of Vancouver. Appleton said he believed the agreement was a real possibility because it does not need legislative approval but is regulatory.

And although Congress traditionally remains protectionist over “Buy American,” the U.S. recognizes that Canada is an important trade partner for resources, with Canada supplying 17 per cent of  U.S. oil, and 17 per cent of gas.

“Americans are convinced they must have access to secure Canadian oil,” he said. “The Americans must maintain good relations with Canada to secure energy flow.”     

Presentations:

Warren Jestin (PDF)

Scotiabank Commodity Price Index Dec. 21, 2010 (PDF)

Scotiabank Global Forecast Update Jan. 7, 2011 (PDF)

Scotiabank Real Estate Trends Dec. 23, 2010 (PDF)

Barry Appleton (PDF)

Michael Levy (PDF)

Helmut Pastrick (PDF)

Listen to Question and Answer sessions:

Wareen Jestin Q&A (mp3)

Panellist Q&A (mp3)