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In case you missed it… 2017 Economic Update

“We expect a little better growth prospects globally,” was one of the positive messages Eric Lascelles, Chief Economist, RBC Global Asset Management (GAM), brought to the sold out CPBI audience on January 26th.

Indicators points to improved economic development globally; however, there are structural reasons Mr. Lascelles believes growth will be sluggish.  Demographics, the rise of populism and a reduced amount of business investment are all long term factors that could impact the future. In the short term, higher interest rates and increased geopolitical risk could also hamper economic progress. On the plus side the largest economy in the world should see expansion with Trump’s proposed tax cuts supporting corporate earnings, which will help bolster US markets at least in the short term.  However, in the long term, these protectionist policies could result in inflation and actually hurt US growth.

 

Impact on Alberta

The Trump presidency is likely to have both positive and negative outcomes for Alberta.  The President’s swift approval of TransCanada Corporation’s Keystone XL pipeline, should give the Alberta economy a much needed boost, while the threat of renegotiating NAFTA and higher tariffs on Alberta crude oil could be unfavorable.

 

So what about Canada?

Canadians should be less concerned about the protectionist trade policies Trump has been threatening to implement than some other US trading partners. Mr. Lascelles suggested the eventual impact could be less severe than promised and could be serving as a negotiation strategy and/or “scare tactic” to serve America’s best interests.

The RBC senior economist is forecasting West Texas Intermediate (WTI) crude oil at $60 by end of 2017 but he says not to expect huge spike in Canadian Economy. Why? There are concerns related to inflation in certain large regional real estate markets (Toronto and Vancouver) and the high consumer debt load. 

 

Rest of the world

The fallout from BREXIT and the US election is likely to lead to uncertainty and perhaps also market volatility for some time to come. In Europe the relationship between Brussels and UK going forward is anticipated to be frosty. Britain’s expressed desire to control immigration whilst still wanting free flow of trade with the Eurozone  is in stark contrast to the Euro zone’s reluctance to this type of arrangement. It would undermine the purpose of a European union and would encourage others to leave.

Further East, RBC expects a slower pace of growth in China (five to six percent GDP growth compared with 10% previously experienced), with a focus on a consumer driven economy. Economic development should also remain steady in India in the coming year. For emerging markets generally growth is on the mend but the recovery is driven by commodity producing economies such as Russia and Brazil.

Mr. Lascelles concluded by emphasizing his belief yet again that the biggest risk to economic progress in the coming year is protectionism.

-          Stian Andersen


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