Northern Economist 2.0

Sunday, 9 July 2017

Economic Forecasts and the Impact on Northern Ontario's Economy: Overview and Assessment

Northern Ontario’s economy, with its traditional reliance on transportation and resource sector activities in the end relies on the international economy as a source of demand for its products.  With that in mind, it is helpful to see what the latest forecasts are for the world economy and the potential impact on northern Ontario.  FocusEconomics – headquartered in Barcelona – is a major international economic research and forecasting company that provides data and analysis on international economic indicators and produces economic forecasts and reports. It covers 127 countries, 12 global regions and 33 commodities.  It recently released its July 2017 Consensus Forecast for major economies.

The good news is that the global economy as a whole is poised to post another strong second quarter performance – three percent real GDP growth – with the United States leading the pack in the G-7.  It would appear that the effects of the Great Recession are finally behind us.  Indeed, the world economy is forecast to grow at three percent well into 2018 with the BRIC countries (Brazil, Russia, India and China - China really) showing the highest growth.  The Euro area has also picked up steam.  Canada is forecast to have its growth remain above two percent until the end of 2018.

Where Canada is not doing particularly well is in investment spending growth and export growth.  The growth rate for exports in Canada in 2017 is expected below the average for the Euro area and Canada is also at the bottom of the G-7.  This is disconcerting given that we have had a low dollar (relative to the United States) for some time now and that does not appear to have given our export sector a boost.  As well, a low Canadian dollar is also making imports of new equipment for the business sector more expensive and out investment spending growth is also a near the bottom for the G-7 and well below that of the United States. 

The conclusion I would draw from this is that a low dollar has been a very poor tool for boosting the Canadian economy – it has not yielded the desired effect on our export growth and it has probably hampered the ability of the business sector to invest and retool itself.   As a result, we are not doing as well as we could be.  Our unemployment rate is below the Euro area (but not Germany or the UK) and above that of the United States.  We are doing as well as we are because of strong consumer spending as well as the effects of the housing sector.  (You might want to check out this view of Ontario’s one-sector economy).  Both these sectors are fueled by consumer debt and interest rates are forecast to rise soon.

For northern Ontario, the commodity price forecasts are of particular interest.  According to a separate commodity price report, FocusEconomics notes that: “Global commodity prices fell slightly in May, according to an estimate compiled by FocusEconomics. The FocusEconomics global commodity price index slid 1.7% from April’s result, chiefly driven down by lower energy prices. In addition, base and precious metal prices lost ground, while agricultural prices rose slightly from the previous month.”  However, there have been upward revisions to the price of gold, silver and palladium, which bodes well for mines in northwestern Ontario.  However, price projects for iron ore, nickel and zinc have been reduced which does not bode as well for northeastern Ontario.

It would appear that the mining sector in northwestern Ontario is poised for some rebound over the medium term but the northeastern Ontario mining sector will remain sluggish.