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Sunday, August 13, 2006

GDP growth forecast to pass the U.S. - Edmonton

What does this mean in Edmonton. The author of below article has two states of mind. One Canada is going to do better than the U.S. in terms of GDP growth on the other hand the Western Canadian real estate sector is going to languish. I'm no econimic expert with a crystal ball. Or at least mine has been dropped so many times that its well cracked but I have a few problems with his theories. Firstly, it is pretty evident that the growth in Western Canada is what is going to drive up the GDP for Canada. I'm not one of those Ontario is a bag of wind believers in fact if anything it is Ontario's stabilty that allows this growth and the softer employment conditions prevent all out inflation.

So what I want to know from any and all economic guru's is how will it be when Edmonton for example on an affodability scale is still more affordable than places like Ottawa, Toronto, Montreal, Vancouver and Victoria that homes here will languish. They may soften but will most likely retain its fairly solid growth. However let's play devils advocate for a second and say prices will soften. Please tell me how much and when. Until then it the chicken little wind bag syndrome. Of course prices will soften...They will also go up. How useful is that information? Not very if their is no context surrounding time frame. It'd be like me in 1909 saying house prices are going to fall. and in 1933 sticking my chest out while I walked around and say "I told you so"

Understandably it is tough to make sense out of economic data because at the end of the day the buyers are the ones who will decide where they'll spend or save. So with that in mind I do see the pace of housing prices in Edmonton slowing slowing somewhat. However I could be wrong and it could grow from 39% / year.

GDP growth forecast to pass the U.S.
Canada to assume third-quarter lead Less risk of severe
economic decline
Aug. 12, 2006. 09:30 AM
STEVEN THEOBALD
BUSINESS REPORTER

After three years of lagging the United States in economic performance, Canada is poised to get back on top.

And with all its fundamentals in great shape, it could stay there for a while.

The strong Canadian dollar — up 40 per cent since the start of 2003 — is the main reason the domestic economy had posted modest gains in recent years.

But that same dollar has benefited consumers through cheaper imports and it has kept interest rates lower than they'd otherwise be.

And it is giving the central bank ample room to cut interest rates if the U.S. economy hits a rough patch.

"It would be much easier for the Bank of Canada to switch to reverse if need be because inflationary pressures are just not as dominant as in the U.S.," said Doug Porter, deputy chief economist at BMO Nesbitt Burns. "Any inflation pressures are highly contained within Alberta."

As well, Canada's strong currency has "absolutely crushed import prices," Porter noted. Motorists ought to keep in mind that without the jump in the Canadian dollar, gasoline would be selling for about $1.30 a litre instead of in the area of a dollar, Porter added.

The Bank of Canada increased its trend-setting overnight rate to 4.25 per cent, pushing up both floating-rate loans, such as variable mortgages, and longer-term rates.

Without the strong dollar keeping inflation in line, the central bank would have been forced to hike the overnight rate to as high as 5.5 per cent, said Marc Lévesque, chief strategist at TD Securities.

"You would have seen a slower housing market and slower overall consumer spending."

Low mortgage rates have helped fuel a run-up in real estate values which, in turn, has contributed to Canada's economic expansion.

Unlike in the U.S., few people are predicting a major drop in Canadian housing prices, though the GTA's condo market and regions of Alberta and B.C. could be vulnerable to a downturn.

And while the economies in central Canada have been plodding along, the west has boomed on high prices for energy and other commodities.

Manufactured exports, however, are Ontario's key growth driver and when they suffer, so does the whole province.

Last week, Statistics Canada reported that Ontario's unemployment rate for July rose above the national average for the first time in more than 30 years.

Job creation, which has been in a bit of a hiatus in the past two months, has nonetheless been stronger than expected so far this year, up 210,000 jobs, most of them full time, with much of the growth in financial and real estate sectors.

Average hourly wages in July were up 3.7 per cent from a year earlier, easily outpacing the 2.5 per cent rate of inflation.

"Real Canadian income growth has been pretty robust with all the job gains we are getting, as opposed to the U.S. where real disposable incomes have barely grown at all," said TD's Lévesque.

Exporters continue to complain about the problems of adjusting to the surge in the exchange rate, but they are making needed investments in machinery and equipment to raise their productivity.

But just as all this investment is starting to pay off, another threat is looming.

Forecasters are warning that the U.S. economy, led by falling real estate prices, is cooling fast after posting 3.5 growth in 2005. Most economists are predicting Canada's economy will grow faster, starting in the third quarter.

Part of the U.S. slowdown is intentional.

The Federal Reserve has hiked its benchmark rate 17 consecutive times in an effort to pull down demand to what it views as a more sustainable level.

The Fed finally took a pause last Tuesday, leaving the funds rate, the interest banks charge each other for the use of Fed funds, at 5.25 per cent, compared with 4.25 per cent for the Bank of Canada's comparable overnight rate.

With an economic slowdown evident in the U.S., the question Fed watchers are now asking is when will it cut American interest rates, said Avery Shenfeld, senior economist at CIBC World Markets.

"If the Canadian dollar is still trading near its current range early next year, don't be surprised if, as a result of the downward pull on inflation, the Bank of Canada outguns the Fed in cutting rates."

Canada's outlook is also much more positive, he added, stressing we are less exposed to a U.S. housing market crash and high oil prices are not inflicting as much harm here since Canada is a net oil exporter.

"There is much less risk of Canada going into an outright downturn than there is in the U.S."

Moreover, most levels of Canadian government are in sound financial shape so they can afford to increase spending, if needed, to spur the economy, said Nesbitt Burns' Porter.

That's not so for the United States or other major economies, he said.

1 Comments:

  • At 8/14/2006 05:33:00 PM, Blogger shawn said…

    In the recent years Industrials are not the big winners, Dow Jones has stayed in the 10 to 11 thousand range for a long time, the current recent winners are resources and commodities, BMO economists have been erroneously bearish about Alberta Real Estate, the Real Alberta housing boom will come when the other provinces will see an economic slow down and workers will start migrating to Alberta in record nos, the trend is already developing, inmigration in Alberta was 4 times the national average, also so far this year 70000 jobs have been created in Alberta, top that up with record increase in wages, one could make a very strong case on the bullish side of Real Estate in Alberta.
    Recent word on the streets is that the vacancy rates in Edmonton have dropped close to 1.5 % from upwards of 4%, that shows a genuine demand and a serious capacity shortage, most of the Condo projects have waiting lists of few hundred customers, with 4 to 6 sales allowed a week, most of the subdivisions are sold out of lots, the huge backlog with builders is nowhere near manageable. Apply the years old formula of supply and demand and the picture is very clear.
    Shawn.

     

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