Special to The Globe and Mail | Thursday, December 29, 2016
Ten years ago, I wrote a book entitled Coming Up Next, which tried to predict long-term economic trends in Canada’s economy. It was sobering to pull the book off the shelf to see which predictions I got right – and which ones I got wrong.
Economists are our own worst enemies. We set ourselves up for failure every time we make predictions, yet we can’t help ourselves. And as another year draws to a close, it’s time once again to guess what’s going to happen next. So, here are some bold (and some not-so-bold) predictions for Canada’s economy in 2017 and beyond.
1. Canada-U.S. trade disputes will intensify. One doesn’t need a Nobel Prize in economics to make this forecast, it’s already happening. With the expiry of the softwood-lumber agreement and an incoming White House administration vowing to get tough on trade deals, it is a certainty that trade spats will dominate the economics news. Softwood lumber will be front and centre. Trade lawyers are rejoicing.
2. West Texas intermediate will close the year at $55 (U.S.) a barrel. Statistically speaking, the best guess is often that prices will end the year at the same point they started. But there is some logic to this as well. OPEC agreements to limit supply may or may not hold together, but Saudi Arabia has realized $30 oil hasn’t worked out that well for it. And shale oil in the United States is likely to put a cap on oil prices when they start bumping up against $55 or higher.
3. Japan will become the focus of a trade deal for Canada. With the CETA agreement mostly wrapped up, Canada needs to find other major economies with which it can broaden its trade base. China is tricky at the moment because of Donald Trump. Russia and Brazil have been huge disappointments. India still seems a while in the coming. Japan ticks all the boxes for Canadian trade, particularly in agriculture, and they’re still keen to continue work on the Trans-Pacific Partnership.
4. The Canadian dollar dips below 70 cents early in the year, but finishes 2017 at 78 cents. With the economy rising in the United States but stagnating in Canada, traders will find more compelling reasons to buy U.S. dollar assets and investments. The Federal Reserve will raise rates three times in 2017, while the Bank of Canada will sit on the sidelines until 2018. However, the loonie should stabilize and regain some ground toward the end of the year.
5. The Keystone XL pipeline gets Washington’s approval. Again, not out on a limb here. This will cheer Canada’s energy sector, but it will sharpen the divide between pipeline proponents and environmental interests.
6. Alberta’s budget deficit starts to shrink. Higher oil and natural gas prices will lift revenues for the provincial government above forecast levels. The carbon fee, which kicks in New Year’s Day, will be redistributed and rebated back to some Albertans, so it won’t have an impact on the deficit.
7. Ontario will have the fastest real GDP growth rate among the provinces. Aided by a faltering Canadian dollar, the country’s manufacturing heartland will continue to shift gradually away from traditional sectors and develop greater global supply-chain focus.
8. NAFTA is not torn up. There are things said during campaigns to jazz up the crowds, and then there are strategies that make sense from within the Oval Office. Tearing up the North American free-trade agreement does nothing for the latter. Mr. Trump will be preoccupied by China, not Mexico or Canada. He has enough business acumen within his cabinet to advise him against ditching NAFTA.
9. Canada does not submit a bid for the 2026 Winter Olympics. The federal and Alberta governments are unlikely to support Calgary in a bid for the Games, especially given the exorbitant costs of security. Calgary’s mayor has said that without federal and provincial support, the city will not bid.
10. Montreal wins the Stanley Cup. University of Calgary Dinos win the Vanier Cup. Winnipeg Blue Bombers win the Grey Cup.
Hold on tight! It’s going to be an interesting year.