Analyst stresses caution | Get debt under control, tap ag export opportunities in China, Asia
Canadian agriculture depends on trade, but exporters need to consider how to carry out international business if the dollar hovers between 95 cents and $1.05.
As well, a soft domestic economy with less than two percent annual growth and continuing low interest rates should be enough warning to the business community to proceed with caution.
“It is still a risky world out there,” Glen Hodgson of the Conference Board of Canada told the International Livestock Congress in Calgary July 10.
He said Canada is not enjoying the robust growth that economists would like to see, which along with considerable personal debt is a drag on the country. But low interest rates won’t last forever.
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“If you haven’t rushed out and refinanced all your operations, now is the time to do it,” he said.
“Now is the time to get your personal debt under control and lock in rates as much as you can.”
Commodity prices may strengthen in some areas and food prices will stay strong, but global food production remains nearly flat.
Hodgson said many people assume that Canada has a resource based economy because of the oilsands and other natural resources, but the reality is that most growth occurs in services such as business, education and health rather than manufacturing, energy extraction and agriculture.
“We are a high-end service economy for the most part,” he said.
“That is where our kids are going to go when they get out of school.”
Unemployment and economic growth varies across the country. The national jobless rate rose as high as 8.7 percent in the recent recession compared to about 12 percent in the previous two downturns. The national unemployment rate has improved to 7.1 percent.
Hodgson said Alberta and Sask-atchewan have the tightest labour markets, at around four percent unemployed, and it will be a challenge to find workers for available jobs.
Economic growth is highest in Newfoundland at six percent be-cause of offshore oil.
However, the real, sustainable growth is in Saskatchewan, Alberta and British Columbia.
Recovery is generally weak in other countries, but improvements are anticipated next year.
China is shifting away from export driven growth toward domestic consumption. The Chinese have more money and want to buy better food, which creates significant opportunities for agriculture exporters.
Other Asian nations are also showing growth and a desire to improve their standards of living.
“If you are thinking about where you want to sell your product around the world, go where the growth is. The growth potential is going to be in Asia,” he said.
Europe remains in recession be-cause of fiscal austerity and financial turmoil but may improve next year.
Canada is negotiating a free trade agreement with the European Union, and that still has value because Europe is a middle class society. However, it is not a growth economy.
The United States remains Canada’s best customer, but the percentage of Canadian exports moving south is dropping.
Hodgson said the U.S. economy is recovering, but long-term fiscal planning is needed.
The U.S. government has made some bad moves that inhibited growth, he added. Irrational cuts to government spending and short-term layoffs in the public sector dampen the economy.
However, some of the recovery in the private sector directly affects Canada.
An energy boom based on new technology such as fracking and horizontal drilling has increased American oil and gas production by more than one million barrels per day.
By 2020, the U.S. could be producing 11 million barrels per day of crude oil and condensates from natural gas. U.S. oil imports are already dropping and could be cut in half within seven years.
“That is a really big story for Canada. Here we are worrying about Keystone (pipeline) when the real issue is whether we are going to be able to grow our market share for our industry at a time when the Americans seem to be self reliant,” he said.
Manufacturing activity is also im-proving in the U.S., while it is flat in Canada.
