Have you heard the old joke about economists? If you put all of us together and ran us head-to-toe around the Equator... we still wouldn’t be able to agree with each other.
Earlier this week a slate of Canada’s top economists gathered in Calgary for a panel event put on by the C.D. Howe Institute. Although the experts lived up to their reputation and disagreed on some topics, they did agree on many of the big overarching themes affecting Canada and Alberta moving forward: emerging markets are leading growth and will continue to do so, the Bank Of Canada isn’t likely to raise interest rates for quite a while again, and demographic factors are going to drag on the Canada’s economy in the long run. But another point trumpeted by more than one expert in the panel was that the economic fortunes of Central and Western Canada could start to diverge again, much as they did in the mid-2000s.
During the mid-2000s, if an outside observer was to look at the Canadian economy as a whole, they would probably surmise that it is operating a reasonably healthy level. GDP growth was running in the historically average range of three per cent, unemployment was slowly declining and incomes were growing slightly faster than inflation. But within Canada the picture looked completely different, depending on which part of the country you were living in. In Central Canada, growth inched ahead as the high Canadian dollar weighed on exports and high input prices hurt manufacturing sector profitability. In Western Canada, the economy roared full steam ahead, fuelled by high commodity prices and massive inflows of investment capital to places like the oil sands.
Switching gears from the past to the future, if economists are in consensus that emerging markets are going to be the engines of global growth over the next few years, demand for commodities is going to remain high (and their prices elevated) and the loonie will probably remain at an elevated level. A high loonie is not good for many aspects of the Canadian economy, but it is much harder on the manufacturing and exporting economies of Ontario and Quebec than it is on the commodity economies of Western Canada. Also, high commodity prices do not fuel economic growth in Ontario or Quebec like they do in Western Canada.
So, although some of the long-term trends point to tepid economic growth in Canada and developing countries in general, there does seem to be a silver lining in the clouds for Alberta.
This will certainly be very welcome news for residents and homeowners here who, after seeing the economy grow so quickly in the mid-2000s and cool off quickly with the recession, may be worried that Alberta was headed down the boom-bust economic path. Although a strong overall Canadian economy is preferred to polarized growth, strong growth, relative to Central Canada, would be particularly good news on the interprovincial migration front for Alberta. Strong levels of interprovincial migration can be a major propellant to the broader Alberta economy as industries such as retail trade and construction benefit from a higher population. The other major positive is that stronger economic growth and interprovincial would help Western Canadian companies tap into the significant pool of skilled labour that is located in Central Canada.
However, to be clear, few pundits are expecting the kind of boom that just happened to happen again. You will be hard pressed to find a reputable economic forecaster, among major financial institutions and economists, who is predicting that Alberta’s economy will grow by much more than 3.5 per cent in the near future (GDP growth was above six per cent in 2006). Housing prices, employment, and wages are already high relative to historical levels and hence there isn’t much room for another boom-type surge in these types of things. But it is probably still comforting for many Albertans just to hear that the recent gains may be held.
As well, a relatively healthy medium-term outlook implies the current high level of economic prosperity is sustainable. Indeed just maintaining the level of economic activity and wealth generated by the mid-decade boom is substantial.
Nothing is a given with economic forecasts but people will often take a consensus from economists whenever they can get one. The consensus that emerging markets are going to lead growth is widely held, and it may be comforting to know that this could spell relative prosperity for Alberta.
Todd Hirsch is a senior economist with ATB Financial.