Stephen Poloz, and a potential Canadian rebound foretold: Don Pittis
Canada expected to bounce back from short-term gloom if the economic stars align
An ostensibly gloomy outlook from the Bank of Canada holds a tantalizing hint of coming good fortune.
As he gazes deeply into his economic crystal ball, Bank of Canada governor Stephen Poloz — imagine him in a Zelda-the-Soothsayer outfit — may be seeing a cloudy vision of a Canadian recovery. But it can only happen if the economic stars align just right.
Speaking of augury, it may be presumptuous for an economic commentator to read so much into the five scant paragraphs released by the Bank of Canada. If you have doubts, please peruse and decipher them.
Hope amid woe
There is no question that amid the woe there are seeds of hope.
"Household vulnerabilities have moved higher," the bank says, as house prices soar in some places and fall in others. That means the bank has not completely ruled out disruptions in the property market.
"Business investment and intentions remain disappointing," says the bank release. It must be disappointing indeed for Poloz, who has repeatedly foretold a recovery in Canadian business investment and exports.
Across the distant seas, goes the current divination, "ongoing geopolitical factors [are] contributing to fragile market sentiment."
A shrinking economy foretold
And perhaps worst, the forest fires in northern Alberta will knock the stuffing out of growth, cutting "about 1.25 percentage points off real GDP growth in the second quarter."
Since the forecast was for a meagre one per cent growth in the quarter, a few minutes on the calculator shows that according to the new soothsaying, the economy will actually shrink by a quarter of a per cent during April, May and June.
As the bank has noted, the U.S. economy is showing renewed signs of strength. Besides employment, mentioned specifically in the bank's statement, new figures show the U.S. housing market in rebound, a very good sign for Canadian producers of construction supplies.
U.S. election year
While Poloz's opposite number in the U.S., Federal Reserve chair Janet Yellen, is considering raising rates in June, there are good reasons to suspect the Fed will be very careful before putting a tight lid on the economy during an election year.
A tiny increase in U.S. rates this year is unlikely to prey upon those "household vulnerabilities" in the property sector that the bank warns about. At least not this year.
Lower U.S. gas prices have encouraged Americans to jump into their cars, and with luck they will come and spend their overvalued greenbacks in Canada during their summer holidays.
If the commodity can hang on to those gains while Canada's oilsands production restarts, that will be a good omen for the wider economy. Combined with that, under the "ill wind" category, the rebuilding of homes and infrastructure razed by the giant forest fire will lead to a burst of spending in Alberta.
Rebound expected
As the Bank of Canada puts it: "The economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins."
In the longer term, other soothsayers have foretold many frightening things. Eventually rising interest rates and an unaffordability crisis may rein in the real estate sector. Carbon-producing industries must eventually wane if the globe takes climate policies seriously. Those "geopolitical factors" may yet worsen and create economic trouble.
But of course divining the economic future is no easier that predicting whether you will meet a tall, dark stranger.
Some wild prognostications
Maybe Bombardier will expand its capacity and actually fulfil its light-rail contracts. Maybe John Chen will find the money to make Blackberry a software powerhouse. Maybe Valeant will get its books in order and figure out how to end the drug shortage. Maybe Canadian companies you've never heard of will surge into the headlines to become world-beaters.
Even if those wild prognostications don't come true, there is a real chance the economic stars will align at the end of this year.
If the U.S. economy grows. If federal stimulus begins to kick in. If commercial interest rates remain moderate. If oil stays high and Alberta rebuilds. And if the housing market can hold its own for another year or so.
If all those things come true — and individually, none is unlikely — then the second half of 2016 may be the perfect opportunity for Canada's industrial economy to rebound, providing a healthy bit of padding for future bumps and scrapes. And that is not such a wild prediction.
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