{"id":21422,"date":"2018-11-26T10:53:30","date_gmt":"2018-11-26T15:53:30","guid":{"rendered":"http:\/\/mileniostadium.com\/?p=21422"},"modified":"2018-11-26T10:53:30","modified_gmt":"2018-11-26T15:53:30","slug":"winter-is-coming-for-the-north-american-economy","status":"publish","type":"post","link":"https:\/\/mileniostadium.com\/canada\/winter-is-coming-for-the-north-american-economy\/","title":{"rendered":"Winter is coming for the North American economy"},"content":{"rendered":"

In the\u00a0sword-and-dragon fantasy\u00a0Game of Thrones<\/em>\u00a0that\u00a0has captured a huge following of readers and television viewers,\u00a0characters periodically share the ominous warning, “Winter is coming.”<\/p>\n

As oil plunges to new lows, as the U.S.-China trade war\u00a0threatens global commerce, as interest rates rise, as\u00a0Canadian house prices teeter\u00a0and climate change\u00a0menaces the world, the North American economy faces a similar feeling of impending doom.<\/p>\n

Later this week Canada\u00a0\u2014\u00a0with its own actual winter here or on the way \u2014 will get a reading on just how gloomy we should be\u00a0when Statistics Canada releases its latest gross domestic product numbers.<\/p>\n

Preparing for a gloomier future<\/h2>\n

In George R.R. Martin’s books and TV series you might think that with winter so near everyone would be working together, hunkering down, storing food and fuel and getting prepared for that ominous future. But no.<\/p>\n

Instead, the characters are just too busy honing the skills that apparently keep that\u00a0pseudo-medieval society hopping, namely murdering your nearest neighbours and erstwhile allies\u00a0and stealing their stuff.<\/p>\n

Just as life\u00a0only imperfectly imitates art, in North America, at least,\u00a0most\u00a0of us\u00a0have not yet got to the murdering and stealing stage.<\/p>\n

And while everyone from the OECD\u00a0to representatives of the Alberta oil sector warn of future risks, for now the North American economy seems strong.\u00a0Some are\u00a0wringing their hands, but most of us are just too busy getting the job done to prepare for a gloomier\u00a0future.<\/p>\n

“I think there is a fair bit of hand-wringing out there,” says Mike Moffatt, an economist at Western University’s Ivey\u00a0School of Business. “I think we are in a time of heightened political risk, between Trump tariffs, Brexit, Trump’s kind of going-to-war with China.”<\/p>\n

In Canada just now, the oil price risk is perhaps the biggest threat. It seems such a short time ago that the U.S.\u00a0was hungry for our oilsands crude and willing to pay dearly for it. But not any more.<\/div>\n

While everyone tries to imagine solutions and looks for someone to blame, market signals, including a made-in-Canada price that some say is heading for $10 US\u00a0a barrel, tell a story of an enormous Canadian industry that a pipeline may not\u00a0save and that output controls will do nothing to correct.<\/p>\n

Global oil demand continues to grow but at any moment the frightening impact of climate change could well alter that.<\/p>\n

OPEC’s nightmare<\/h2>\n

But quite apart from environmental worries, for Canadian crude, expensive to produce and transport,\u00a0there is a much\u00a0greater medium-term threat expected to strike well before a pipeline could possibly\u00a0arrive. That threat is\u00a0outlined in a report by\u00a0Bloomberg’s chief energy correspondent Javier Blas\u00a0with the headline Texas Is About to Create OPEC’s Worst Nightmare.<\/p>\n

If as the story suggests, the Permian Basin is about to challenge the Saudis with vast new output of\u00a0light sweet crude\u00a0that can be pumped and sent to the Gulf Coast\u00a0at a world price of $30 US\u00a0a barrel, then no wonder investors are wary of Alberta bitumen\u00a0mined 4,000 kilometres from Gulf refineries.<\/p>\n

As Globe and Mail columnist Gary Mason wrote\u00a0last Friday, Alberta needs a Plan B\u00a0and it\u00a0doesn’t have one.<\/div>\n
\n

When OECD\u00a0chief economist Laurence Boone gave her list of risks for the global economy last week, oil prices were just one of many.<\/p>\n

“There’s not one risk that worries us, it’s the accumulation of risk,” said Boone in her presentation with the rich-world think-tank’s secretary general, Angel Gurria. “Trade, the impact of higher U.S. interest rates on emerging market economies, China’s imbalances, oil prices, inflated asset prices, politics.”<\/p>\n

And risks come in groups, she says.<\/p>\n

But with that list of apprehensions, neither Boone, nor Canada’s Finance Minister Bill Morneau, nor Bank of Canada governor Stephen Poloz\u00a0seems worried about an economic collapse in the new year.<\/p>\n

Bucking the trend<\/h2>\n

In fact, according to the OECD\u00a0outlook, while economic growth has peaked in the world as a whole, Canada’s economy is bucking the trend and will see\u00a0faster growth next year, with GDP in 2019 rising\u00a02.2\u00a0per cent following an expected 2.1 per cent growth rate in 2018.<\/p>\n

One of the contributors? Legal cannabis, which on its own will boost the economy by two-tenths of one per cent.<\/p>\n

As Moffatt reminded me, Canada’s property market is in gentle retreat and, while the U.S. expects slightly slower growth next year as Canada’s rises, the economy\u00a0should\u00a0remain robust.<\/p>\n

It is after that that the OECD\u00a0says countries must be prepared to step in to sustain their economies with new fiscal spending. In other words, they should not spend now but must prepare for winter.<\/p>\n

In some ways that’s contrary to what the finance minister did last week, letting the deficit rise to help charge up GDP by cutting taxes on corporate capital spending.<\/p>\n