So how will Canada fare with employment, oil prices and housing in 2015? Top economists share their views for the year ahead.
Doug Porter, chief economist at BMO Capital Markets believes that 2015 will see only a little improvement in the job market. “Through much of 2013 and 2014 the jobless rate was seemingly locked at about seven per cent. It’s become unstuck in recent months. We see it in the low six per cent range,” says Porter. According to Porter, the rate of unemployment drifts downwards in a growing economy, whereas it shoots up drastically when economic growth slows down. And as BMO Capital Markets foresee the Canadian economy doing better in the coming year, it is therefore predicted to bring down the unemployment rates as well.
The chief economist at Gluskin Sheff and Associates, David Rosenberg, also has a positive prediction for 2015, forecasting the unemployment rate to drop from 6.5% to 6% by the end of next year mainly due to Canadian exports seeing a boost due to a slowdown in China’s economy. “With the lagged impact of the Canadian dollar’s depreciation, the fiscal stimulus at the federal level and the US economy in acceleration mode, goods-producing employment will be a big source of support,” says Rosenberg,
Dawn Desjardins, assistant chief economist at Royal Bank of Canada, believes the unemployment rate in 2015 will lower only slightly from its current 6.5%. “We expect it will hold at or slightly below this level, historically considered to be the economy’s full employment rate.” says Desjardins.
Striking a positive note, Porter believes the US will lead the way to a global economic recovery in 2015, and that this won’t be hampered by high oil prices, which he believes will see only a moderate increase. “I don’t think we will be back at the triple-digit mark, but it will be in the low to mid-$80s. So we will see some recovery—though, having said that, it could go lower in the meantime.” Rosenberg largely shares this view, putting the price rise down to higher international demand and production cuts from both OPEC and non-OPEC suppliers all over the world. “There is a significant portion of global oil production that is not economic or “fiscally viable” below $80 per barrel and this will result in production cutbacks after oil remains below $80 for a couple of quarters,” says Rosenberg.
Desjardins also predicts only a mild increase in oil price in 2015. “We expect oil prices (WTI) will be around $75 at the end of 2015, supported by a gradual recovery in global demand and the likely paring back of supply,” says she.
On the question of housing prices, Porter feels that it is tough to speculate on Canada’s real estate market, but believes that prices will increase in 2015. “They won’t rise as quickly as in 2014; we’ll see a bit of cooling off next year. But economists, pundits and media have been spectacularly wrong on the housing market. As long as borrowing costs remain so exceptionally low, and employment growth keeps churning ahead, it would be tough to see a serious near-term correction. That’s not to say the market will never feel some pain, but the near-term outlook appears reasonable at this point,” he says.
Desjardins also predicts higher house prices by the end of 2015, but thinks that the rate of increase will be lowest since 2009. “Affordability in most markets shows modest signs of stress. The outliers are Toronto, Vancouver and to a lesser extent Calgary. Low interest rates and modest increases in income have offset the impact of rising prices in most cities. In 2015, expected increases in mortgage rates will challenge affordability. That said, with the Bank of Canada likely to only slowly raise the policy rate, and income growth expected to accelerate, we are looking for a cooling in housing sales, not a collapse,” she elaborates.
Rosenberg however feels that house prices will remain flat all over Canada. He predicts low mortgage rates for next year due to the good amount of housing availability in terms of supply and demand. “But home prices relative to apartments are too far into the stratosphere, and residential real estate values, benchmarked against virtually any economic metric, are far too high relative to historical norms to believe there can be much upside to prices,” says Rosenberg.
Alberta, an oil- and gas-rich western province, has been was responsible for entire Canada’s net employment growth in the past 12 months, adding 81,800 jobs while the rest of Canada lost 9,500. The trade surplus in Alberta stood at C$7.4 billion ($6.9 billion) in May, and made up for the deficit rung up everywhere else.
If such growth trends continue, Alberta would surpass Quebec to become Canada’s second-largest provincial economy in three years, according to Bloomberg.
“Alberta is already by far the strongest province economically, and higher oil prices will only exacerbate the regional split,” says Benjamin Reitzes, a senior economist at BMO Capital Markets.
Alberta’s growing power is putting energy ahead of manufacturing exports like Ontario’s cars and Quebec’s aircraft. But it’s also drawing tens of thousands of young people who are seeking energy jobs with some of the country’s best salaries.
This is a challenge for policy makers: Oil wealth has made the Canadian dollar stronger, squeezing Ontario and Quebec manufacturers. The central bank of Canada is keeping interest rates near historic lows, and is looking for a weaker currency to boost exports.
“We see a two-track economy,” says Bank of Canada Governor Stephen Poloz. “Canada’s non-energy exports have disappointed, holding back growth. At the same time, energy exports have indeed been quite strong and we expect that to be a continuing trend.”
For decades, manufacturing has been at the heart of Canada’s economy and government policy. It was started by a 1965 pact to form a single market for autos between the US and Canada, and a 1988 free trade agreement to remove tariffs on goods traded by the two countries.
Prime Minister Stephen Harper says that Canada may see C$650 billion of resource projects over the next decade, for instance, the Enbridge Inc.’s C$6.5 billion Northern Gateway pipeline. This project would take Alberta bitumen to the Pacific Coast, thereby opening access to Asian markets and reducing Canada’s dependence on the US. Producers are also hoping for TransCanada Corp.’s Keystone XL pipeline, which would take Alberta’s oil to the US Gulf Coast refineries.
“Continued expansion of oil and gas production has resulted in increased revenues,” says Chief Operating Officer Keith Creel. “Looking at the balance of 2014, we see strong fundamentals on the demand side.”
According to Bank of Montreal, Alberta has been “effectively the lone driver” of recent housing starts, caused by population growth that has been the highest in more than three decades. Next year, the province’s per capita gross domestic product is estimated to reach C$88,000, which will be C$35,000 more than the rest of Canada.
The jobless rate in Alberta was 4.9% in June and has averaged 5.4% in the last five years. Whereas in Canada overall, it was 7.1% in June, and 7.5% in last five years.
“When you live in Alberta you have a sense of job security and of choice,” says Byrne Luft, vice president of operations for Manpower Canada in Toronto. Alberta’s labor market has gone “from a very tight unemployment rate to an extremely acute, critical point,” said Luft.
According to data by federal statistics agency, more people moved to Alberta from other provinces than to any other area. About 27,700 moved in 2011-12. Since 1976-77, Alberta has brought in a net 483,600 people from the rest of the country, whereas Quebec saw an outflow of 465,400 people in that period. Ontario saw a net inflow of 63,200 people, which is 13% of Alberta’s total.
Output from Alberta’s oil sands will more than double to 4.1 million barrels a day by 2025 from 2013, according to the Canadian Association of Petroleum Producers. The value of exports of crude oil derived from bitumen has almost doubled to C$81.7 billion in 2013 from C$42.8 billion in 2009.
According to Bank of America Corp. data, Alberta’s bonds due in 7-10 years yielded 2.63% on July 21, compared with 2.79% for similar-maturity Ontario debt.
Alberta pays 60 basis points above comparable federal debt to borrow money for 7-10 years. This is the lowest spread among Canada’s 10 provinces. Investors ask for 80 basis points from Ontario and 81 basis points from Quebec to hold debt of that maturity.
“Canada is becoming a tale of two cities, Toronto and Calgary,” says Jack Mintz of the University of Calgary’s School of Public Policy. “I don’t think growth in Alberta means other places are worse off,” he said. Ontario has lost manufacturing competitiveness to China, the US and Mexico, he said.
In a review of prosperity across 24 global cities conducted by the Toronto Region Board of Trade, Calgary rated higher than Toronto. Paris was ranked first. Calgary was second on superior growth for income and jobs, along with lower taxes, and Toronto was in third place.
Alberta’s growth marks both a revolution for Canada’s economy as well as a throwback to the days when the country relied on the fur trade. Even today Canada remains dependent on exports of such staple goods.
According to Peter Buchanan, CIBC World Markets economist, oil as a staple export has more staying power than the beaver pelts that once fed Europe’s fashion industry. “Fur hats come and go in fashion, but it’s harder to do without oil,” he said.
Canada’s oil-producing provinces have been ranked among the world’s top economic performers in a newly released think-tank report.
Each year, the Conference Board of Canada ranks 16 of the world’s richest countries in terms of economic performance, based on factors such as growth and employment rates. This year, however, the Canadian think-tank not only analyzed the country as a whole, but also broke down and compared the economies of the ten different provinces.
The findings were somewhat surprising, due to the disparity between those provinces whose economies are oil-based and those that are not. While overall Canada ranked fifth among the world’s richest countries, Alberta, Saskatchewan and Newfoundland were ranked the top three jurisdictions in the world, when graded separately.
The top-rated economy was Alberta, which outperformed the top-rated country Norway by about $10,000 per capita on income. Ontario, British Columbia and Prince Edward Island all ranked in the middle of the group with countries like Germany and the United Kingdom. At the bottom of the pack were France, Belgium and the Canadian provinces of Nova Scotia and New Brunswick.
“What this tells us is we have provinces outperforming the rest of the world, and we have provinces that are struggling along with the laggards in the Eurozone,” said Conference Board project director Brenda Lafleur.
The report predicts continued strength for the three oil-producing countries, and recommends that the lagging provinces work on productivity initiatives to boost their economic performances.
Canada’s overall fifth place ranking is an improvement after coming in sixth last year.
Source: Vancouver Sun