The Advancing Leadership Blog

December 2013 Andersen Economic Report

As 2013 comes to a close, all indications point to a very promising 2014 as the U.S. economy prepares to take-off. It takes about seven years for any economy to really recover from a financial crisis, or so history tells us. This last downturn began in 2007, so one can only assume that 2014 will be a normal recovery year. With real GDP growth in the United States forecast to head into the 3.5-4% growth range, the American economy is expected to be back to full employment figures by 2016. The surge in oil and gas could produce enough employment to offset the losses in the housing market collapse. American defence spending might also be affected as the U.S. becomes less dependent on imported oil.

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In global markets, Europe is still vulnerable to a renewed financial turmoil. While the balance sheets and capital ratios of some core Euro-Area major banks have improved, the overall Euro-Area banking system remains under-capitalized. There is little near-term prospect of comprehensive European banking system repair as the creation of a banking system union is still years in the future. With industrial production in the Euro-Zone declining, the outlook for continued economic recovery is not as strong in Europe as it is on the other side of the Atlantic.

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While there is a positive outlook on American economic growth, Canada lacks the drivers that are revitalizing the U.S. economy. There is not much pent-up replacement demand for consumer durables. Canada’s housing recovery is over. Housing starts are headed lower in Canada. The American shale oil boom and decline in the U.S. oil imports is also bad news for Canada. With Keystone XL still on hold in Canada, Western Canadian oil production is rapidly approaching the limits of domestic consumption needs and current export capacity.

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A depressed benchmark Canadian oil price would also have a severe impact on Alberta oil royalties and therefore on its budget deficits and government spending potential. However, manufacturing thrives on cheap energy and Ontario is Canada’s manufacturing heartland. Manufacturing is being revitalized in the U.S. and there could be a spill-over effect into Ontario. Automated manufacturing costs are falling to the point where the equivalent wage-per-hour is becoming competitive with low-wage developing countries.

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Full-time employment has continued to increase but the trend line has definitely moderated. Current employment trends continue to be highly favourable in Calgary and Edmonton. Alberta should continue to outpace the other major provinces in 2014. Employment has also performed very well in Toronto though – much better than in Vancouver. 2014 is shaping up to be a much different year than 2013, as the economy is showing surprise spunk while we wind down the year. Solid economic growth appears to be in the cards for both Canada and the U.S. as we venture into the New Year.

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The Andersen Report is exclusively available to TEC Canada members. To receive one complimentary copy, CLICK HERE.

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