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By Greg Hoekstra

Vancouver Board of Trade members were taken on an economic roller-coaster ride March 7, as TD Bank Group’s chief economist, Craig Alexander, shared insights on everything from B.C.’s provincial outlook to the U.S. housing market to the Eurozone debt crisis.

Alexander’s address, held at the Fairmont Waterfront and presented by TD Bank Group, covered a great deal of ground, giving investors and financial advisors a clearer picture of the financial conditions that lie ahead in 2012 and 2013, as well as some of the looming risks across the globe.

One of the most concerning situations, he said, is the ongoing debt crisis that European leaders are struggling to contain.

“The big story on the international front has been Europe for the last year or so. And I have to be honest, Europe has been the slowest moving train wreck of all time,” said Alexander.

“The risk, if this is not contained, is enormous. In fact, I’d argue that it would be worse than 2008, because rather than it being one government dealing with one financial system, it’d be 17 governments dealing with 17 financial systems.”

However, Alexander quickly noted that there is a light at the end of the tunnel.

In late December, when many economists developed their 2012 forecasts, there were very few signs of progress in Europe. But since that time, there has been “fundamental progress in all the areas that are needed,” which Alexander said is a positive indicator.

“Things in Europe are playing out far better than we anticipated,” he said.

In terms of the U.S. economy, Alexander said modest growth is expected in 2012. However, he noted that the American housing market will likely continue its slump, and expressed fears over what’s to come following the presidential election this November.

“When we get to 2013, I get worried,” said Alexander. “At the end of this year, as we head into 2013, a lot of the support programs the U.S. government has put in place are going to expire.”
Those initiatives set to expire include emergency EI benefits, payroll tax cuts, and further tax cuts introduced by the Bush administration.

Overall, the situation in the U.S. isn’t terrible from the perspective of a Canadian investor, said Alexander, but for American citizens it’s likely going to be disappointing.

“I think there’s going to be a lot of frustration in America,” said Alexander. “I think the American economy is not going to deliver the opportunities that [American citizens] want, because in order to get those opportunities, they need a period of growth that’s in the four to five per cent range. What they are going to get is two-and-a-half.”

Here at home, the Canadian economy is also expected to grow modestly, at a rate of roughly two per cent for the next couple of years.

Alexander predicted that B.C.’s provincial economy will grow at almost the same rate as the national average, but said Vancouver’s economy will likely move a little more quickly.
In the short term, Alexander said Canadian interest rates will likely remain low, bond yields will rise slightly, and equities will outperform bonds.

Corporate profits will advance in 2012, he said, but will be limited to a “single-digit pace.”
The Canadian dollar will remain strong, and will likely hover around parity with the U.S. dollar for the next few years, which will present challenges for Canadian businesses.

In summary, Alexander said Canada will likely have a “steady as you go” economy in 2012, but stressed that volatility will remain a dominant theme in the near future, which does present some risks.

Current tensions overseas, particularly between Israel and Iran, are troubling from an economic perspective, noted Alexander.

“When the newspaper starts reading like a Tom Clancy novel, I start feeling uncomfortable,” he said.

If more conflict does erupt in the Middle East, Alexander predicted that the price of crude oil will be “dramatically higher” which would ultimately slow down global economic growth.

If that doesn’t happen, he added, the price of oil will likely remain high, which will dampen consumer spending in North America, “but overall, the global economy can weather it.”

 
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