As the old saying goes, when the U.S. sneezes, Canada catches a cold. With the U.S. debt ceiling dispute resolved, for now, and the stock markets taking a beating as a result of the S&P downgrade of U.S. debt, what does the future hold for the economies of Alberta and Canada?
I posed a number of questions to Jason Brisbois, director of the Western Centre for Economic Research at the University of Alberta School of Business to see what he had to say about unemployment and the economy.
In light of US debt/downgrade situation, how well do you expect Canada and Alberta to fare in terms of unemployment?
The downgrade is a technical exercise and will not have much direct impact on the US economic situation or on employment in Canada or Alberta. Investors continue to buy American debt as a safe investment and do not regard the US as a default risk.
The more relevant issue is whether the US can avoid another recession or improve its current poor rate of economic growth and job creation. In the short term, this may require another round of government stimulus but in the longer term, Congress must cut spending and raise taxes to start reducing its debt.
Until then, individuals and businesses will not have the confidence to boost the spending and investment that ultimately drives the US economy.
Do you expect Alberta to continue to do better economically than the rest of the country?
Alberta’s economic growth is directly tied to the US demand for energy. If the US avoids another recession and improves its economic performance Alberta will continue to be among the leading provinces in terms of economic growth.
But to ensure longer term prosperity, Alberta must diversify into other markets for energy and into other exported products.
Where do you expect oil prices to go in the near future? Will that lead to more unemployment in the oil patch?
North American oil prices will follow the performance of the US economy. I expect North American prices to stay above $80 USD per barrel, but not get back to the $100 plus range until mid winter.
Some firms will likely scale back on constructing oil sands projects, but most are already committed and I don’t expect much impact on Alberta employment numbers.
Is a double dip recession in the US likely? Could Canada suffer the same?
A recession, defined as two successive quarters of decline in economic output, is unlikely in the US and even more unlikely in Canada. I think the US will see very modest real growth in 2011 of under 2%.
As the US is the largest consumer of Canada’s exports, and as over indebted Canadian consumers continue to limit spending, I expect Canada’s real growth to be only moderately better at about 2.2%.
What should the Canadian and Alberta governments do? Increase stimulus spending, just in case? Reign in spending and risk choking the economy?
Canada’s strategy, as advocated by the Bank of Canada, is appropriate. We must keep credit flowing by maintaining low interest rates until inflation numbers dictate that is time to raise rates.
Government debt, at the national and Alberta levels, must remain under control. Further stimulus spending is not required at present, but over indebted consumers must reduce borrowing. Alberta must diversify its export markets.