It is a tradition that the Economic Club of Canada, early in January, organizes an event in which the chief economists of the 5 main Canadian Banks lay forth their forecasting for the year 2017. This year the event took place on the 4th of January at the Fairmont Royal York Hotel in downtown Toronto.
The moderator of the event was Frances Horodelski. Ms. Horodelski is a journalist and was an anchor of the BNN cable channel.
I asked Ms. Horodelski whether she is of Polish origin? She answered that her ancestors come at the end of the nineteenth century to Canada from Galicia. Galicia was then a region of the former Austro Hungarian Empire. Now the old Western Galicia is a part of Poland, and Eastern Galicia is part of Ukraine.
But let’s go on to the event. After a small breakfast which lasted maybe 20 minutes, the 850 guests, mainly members of the Economic Club of Canada, listened to presentations of the 5 chief economists of the 5 main Canadian Banks. Each of them had about 5 minutes to present his opinion.
These were the five chief economists, representing the following banks:
Craig Wright, Senior Vice President & Chief Economist, RBC Royal Bank;
Derek Burleton, Vice President & Deputy Chief Economist, TD Bank Group;
Avery Shenfeld, Managing Director & Chief Economist, CIBC World Markets;
Douglas Porter, Managing Director & Chief Economist, BMO Financial Group;
Jean-Francois Perrault, Senior Vice President & Chief Economist, Scotiabank.
At the beginning we heard, that what most surprised the economists in the passing year 2016, was the boom in the real estate market in Canada, and in the GTA specifically.
The increase of the average price in the housing market was beyond their expectations, and the prices of the houses were beyond what they had expected at the beginning of the year 2016.
The other unexpected market reaction was the short time of the reaction to the exit of Great Britain from the European Union. Negative market reaction was short. The slowing of the world market economy was not a long one.
The other unexpectedly positive reaction was the reaction in the investment markets to the winning by Donald Trump of the presidential election in the USA.
During this event, the economists and the people who asked questions have relatively often mentioned and talked about the so-called Trump effect, the positive effect of Trump's electoral victory on the economy.
Because of the unexpected market reactions, the economists increased their economic growth expectations for Canada for the year 2017.
In terms of threats which are hanging over economic growth in 2017, the economists referred to the slowing down of the Chinese economy, and particularly the slowing down of the real estate market in China.
The other threat is the very difficult situation of the Italian banks, and also the weak Russian economy. Although none of the economists defined the reason for the weakening of the Russian economy, it is safe to say that it is associated with the restrictions put on Russia due to that country's dispute with Ukraine over eastern territories of Ukraine.
Overall, the global economy is doing better, and that resulted in revising forecasts for growth in the world economy to grow in the range of 3.4%.
In terms of interest rate increases in America during the year 2017, the economists were saying that they do expect some moderate increase of the interest rates. At the same time, they do not expect an increase of interest rates by the Bank of Canada during the year 2017.
At the same time, it has to be emphasized that during the presentation it was said that the forecasts are for the time frame of one year and in some areas they may go beyond that, to the year 2018.
During the Questions and answers part, one of the economists said that the government of Canada can stimulate the Canadian economy to respond to the economic situation in America, within the one year frame, so as to neutralize any negative effects which are coming from American market. After one year time frame, the government of Canada is going to have a hard time, or is going to be too weak to respond to any negative forces which may be coming from the USA.
The economists assessed that the world economic growth in the year 2017 will be in the neighbourhood of 3.4%. The GDP increase in USA will be in the neighbourhood of 2.3%.
In the Q&A part, there were several questions asked. Among them, one was about the impact of the economic situation in Mexico on the Canadian economy.
As a response, we heard that the Mexican Peso during the year 2016 has lost about 20% of its value against the US dollar. Mexican economy is in a very good state. Mexico is in fact taking away jobs from Canada. This tendency will continue because the differences in the costs of production favour job creation in Mexico.
Another guest asked about the impact of the protectionist policies announced by Donald Trump, in regard to the Canadian Economy.
In the answer, we heard that Canada does not have any defence to the policies which will be introduced to the USA economy. Obviously, these protectionist policies will have an impact on the job market in Canada. It was said that the NAFTA agreement is good for and favours the USA, but is not so good for Canada.
The economists said that the Canadian government will try to maintain the Canadian dollar at 70-74c against the US dollar. The presenters expect that the price of oil will be set at around $60 per barrel of oil by the end of the 2017.
I have to regret that the panellists, quoting different prices, did not clarify the dollars they had in mind.
In their answers, the panellists emphasized the dependency of Canadian economic growth on the price of oil. For the year 2017 they assessed the GDP growing at around 3%. The increase of wages in the 2017 will be between 2% to 3%.
The latest opinion was stated in the context of internal demand in Canada and that such internal demand will be weakening. In other words, there is no expectation that this increase of wages will improve the wealth of Canadian society.
In my opinion, that means that this wage increase will be swallowed by inflation, tax increases, and the repayment of debt of the average Canadian.
In terms of economic trends, the panellists assessed that the Euro will regain its strength against the US and Canadian dollar. The value of the Euro will be stabilizing, or will have the tendency of increasing over time.
Another interesting opinion said by one of the panellists was such that by the year 2018 the government of Canada will have to increase spending on infrastructure to stimulate the Canadian economy further.
At the conclusion of this event, Mr. Terry Campbell, the president of the Canadian Bankers Association, made a short speech in which he thanked the panellists for sharing their opinions about the state of economy and their forecasts. He said that the panellists travel a lot around Canada in order to make Canadians better informed, and to improve knowledge about economy among Canadians, and to improve their decision making. This was met with the unanimous applause of the guests.
Finally, my opinion is that this event was very informative, but was lacking one thing. The panellists and the people asking questions did not ask about the impact of Canadian and US debt on the economy and world economy as well during the year 2017.
No one asked about the impact of the Canadian federal and provincial debt or the combined provincial and federal debt on Canadian economy, on the value of Canadian currency, on interest rates, etc.
No one asked about the impact of the substantial US federal debt on the US economy, or the value of US dollar.
I have heard one sentence in which one of the panellists said that he expects the interest rate of US federal bonds to be at around 2.5%. This increase of the interest rate will be needed to maintain the value of US dollar.
But the panellist did not refer to the time frame. Which time frame was he referring to? One year, or five years?
Getting out of the meeting, I was somewhat disappointed that no one asked about US combined debt (federal and states, and cities) and also combined (federal and provincial) debt.
The sale of Hydro One is strongly correlated with Ontario's provincial debt. We have strong proof that Canadian or provincial debt has already started haunting the average Canadian.