Households cutting back on debt and companies focusing on exporting goods to Asia will be keys to improving economic growth in Canada beyond 2015, according to Peter Andersen, expert economic forecaster with Andersen Economic Research Inc.
“These are the trends to lead us to more economic growth in Canada,” said Andersen, who spoke at the Canadian Institute of Financial Planners 2012 annual conference held in Vancouver Monday.
A higher Canadian dollar paired with poor productivity has caused Canadian exports to the U.S. to slow and, as a result, gross domestic product (GDP) growth to drag.
“We have had the worst export performance since 1951,” added Andersen, with 85% of Canada’s exports going to the U.S. Only 8% of exports go to emerging markets such as China.
“We need to get more focused on Asia if we want to see levels of exports rise,” he added.
Until there is a focus on Asia, the decline in exports to the U.S., paired with a pullback in government spending will result in Canada’s GDP growth hovering at about 2% for 2013 and 2014. Meanwhile, Andersen had called for U.S. GDP growth to rise to 2.5% by 2013 from 1% for the rest of 2012.
Andersen called for higher interest rates in 2015, which will likely put pressure on clients to stop using debt and further slow down growth. Governments at all levels – federal, provincial and municipal – will also be motivated to reduce their spending.
“Americans [have begun] deleveraging, but that has yet to occur in Canada, and will likely happen in 2015 when interest rates rise,” he said. Currently, public debt in Canada is 83.5% of GDP; meanwhile, public debt in the U.S. makes up 69.4% of GDP.
The main culprit behind anemic U.S. economic growth is a pullback in government spending. Funding from the 2009 stimulus package has run dry and tax cuts introduced by the administration of George W. Bush are slated to expire in January 2013.
If it weren’t for the imploding economic crisis in Europe, Andersen stated that GDP growth in the U.S. could have risen as high as 5%.
Opportunities for GDP growth in the U.S. remain in the natural resource sector, specifically the production of shale gas, which is a natural gas extracted from shale rock formations.
“Shale gas has been a real game changer for the last few years,” said Andersen. He said it has lowered fuel costs in the U.S. manufacturing sector.
He also stated that growing technologies should boost employment in the U.S., where there will be a multitude of jobs for scientists, engineers and other professionals in the next few years.
“We should be generating 180,000 jobs in the U.S. in the next year, which should help bring the unemployment rate down,” said Andersen.
A rise in employment would also improve the housing market, as clients would have more income and can afford to buy or upgrade a home.
“Housing [will] still be at a low level, but now will add to the economy, rather than stack in front of it,” he added.