Economist considers global economy climate for 2013

One of the best ways to stimulate growth in a town is to work with others with similar goals.

One of the best ways to stimulate growth in a town is to work with others with similar goals.The Town of Ponoka works within the Central Alberta Economic Partnership (CAEP) and members met for their annual general meeting.

One of the speakers at the Nov. 29 meeting in Red Deer was Todd Hirsch, senior economist at ATB Financial, who gave attendees an overview of the global economy and his thoughts for 2013.

He started by saying central banks are not operating as they normally do because of recent economic downturns.

Central banks normally lower interest rates if the economy takes a downturn and this helps build up the economy again, he explained. However in 2012 this has changed, especially in industrialized countries. He feels cutting interest rates does has not helped in tough times. Now they resort to what is called “quantitative easing.”

“Basically printing more money. Not physical bills but injecting more cash into their economy,” said Hirsch.

Banks in Europe and Japan have used this principle in their economies. “Canada has not yet gone down the road of quantitative easing and I don’t think they will.”

The federal reserve in the United States is in its third phase of easing with $40 billion every month. Central banks buy financial assets with new money to help stimulate the economy. It will continue until there is some financial growth, he explained. But Hirsch questions whether quantitative easing is achieving its goals.

Critics claim it has not worked and feel there is more danger with extra money in the economy causing higher interest rates but proponents argue it helped stimulate the American economy during the financial recession of 2008-09.

“Supporters would say the economy did prevent something worse from happening. It prevented the absolute collapse in the western economy,” he explained.

He feels economists will debate the merits of governments putting money into the economy for years to come but adds it is the lack of co-operation in the world that is hurting the economy. Hirsch used Europe as an example. Some governments are saying the Mediterranean countries must impose deep cuts into their budgets to ensure they can pay their debt, and Mediterranean countries feel there should be growth policies to help stimulate the economy.

“A reasonable person would say it needs to be a compromise of both credible austerity and some policies that sort of do support some growth. It can’t be one or the other,” he explained.

He suggests if the European Union countries worked closer together they might be able to come up with a solution.

One of the areas Hirsch feels is showing positive signs is the American housing market, which was also one of the reason for the economic downturn.

“It’s picking up a little bit of momentum in the last five or six months.”

Numbers are not as high as they were in 2006 but he believes it is unadvisable to be at those levels.

“You really don’t want to compare prices in 2006 to anything considered healthy,” he explained.

Housing starts were too high and there were too many homes at that time. With the current steady growth and stability in the market, Hirsch feels hope as it will encourage consumer spending and bolster prospects in 2013.

Canada is doing about as well as America, he stated and feels there is going to be 1.2 to 1.5 per cent gross domestic product growth but ideally it would be about three per cent. What is helping the Canadian economy though is the strength in Western Canada.

“If it wasn’t for Western Canada, and the Prairies in particularly, the number might be closer to the number zero or maybe half a per cent,” explained Hirsch.

He credits oil as one of the main reasons for economic growth. He did not say what prices would look like in 2013 but energy companies might have issues with prices due to world uncertainty. The Middle East is in a state of unrest and the system in Europe might collapse, both of which could create economic malaise.

He believes Asia, especially China, will be a factor in helping the global economy. The country has room to cut interest rates to help stimulate the economy and China also has money to spend on stimulus and infrastructure. “If growth were to slow too much, you would see the Chinese government react with policies to kind of keep propelled along.”

Another sector in Alberta where he sees growth is in agriculture. Farm cash receipts are on track to set new records — a credit to high grain prices and high livestock prices, including cattle. Technology in agriculture is another factor.

“A lot of Albertans would be surprised at how tech savvy agriculture producers actually are,” he said.

He also expects to see growth in the retail industry as most employed Albertans feel secure in their jobs and their salaries.

“Wages are the highest in the country,” he stated.

Expect to see stability in 2013 with secure job markets in Alberta and strong agriculture and oil sands markets.

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