The first half of 2015 was a time of great economic change for Canada. These changes have raised concerns for Canadians as they head into the second half of the year: What impact will lower oil prices have on them and Canada’s economy? What changes can the manufacturing industry expect to see? What issues should Canadians be aware of regarding the upcoming election?
To gain some insights not only into where Canada’s economy stands, but also where it is headed, we turned to Professor Paul Boothe and Assistant Professor Adam Fremeth to address these types of questions. To shed some light on the implications for businesses, Boothe and Fremeth also highlighted the top concerns facing Canadian businesses for the remainder of 2015.
Q: In light of the upcoming election, what do you feel are some of the important issues that will concern Canadians?
Adam Fremeth
The economy is going to be a primary concern for Canadians. It’s more about how people are feeling at home, and I don’t think people feel overly confident with the direction the economy is heading.
In the next six months, the biggest concern for Canadians will be the election itself. What is the election going to bring? If we have a change in government, what is that government going to look like? The biggest uncertainty for business is what this new government is going to look like, and how far it will shake things up from where we’ve been over the last 10 years with the conservative government.
Paul Boothe
It strikes me that there is really one issue that supersedes all others, and that is the rate of growth of the economy. For quite a long time we have enjoyed rates of growth in Canada in real terms in the neighbourhood of three per cent on average. And now, for a number of reasons, as we look ahead, most economic analysts suggest that if we don’t make changes, we’ll be looking at growth in the two to 2-1/2 per cent range per year. On the surface, this doesn’t sound like a big number, but when you’re talking about the whole economy, it is a significant total.
When you look at some of the recent policy measures over the last few years and the most recent budget, I think you need to put on your economic growth glasses and look at them and say, “Are these policies really pro-growth?” Because that’s what we really need. It’s a lot easier to divide a growing pie than it is a shrinking pie.
Q: What is the current effect of the weakening of the Canadian dollar?
Adam Fremeth
Produce, food and vegetables that we’re importing from the U.S. are going to become more expensive. This is coupled with the fact that there has been a record drought in California and the southwest United States where we get a lot of these goods. The prices are already limited due to lesser supply, and then we’re getting hit again with the weaker dollar. So, I think we’re going to feel this in our household economics.
As well, if you have foreign firms looking to invest in Canada, all of a sudden things are a lot cheaper than they were before. With this buying opportunity, we may see an opening up of mergers, acquisitions and takeovers that we weren’t seeing before due to higher expenses.
Q: What changes do you think the manufacturing industry can expect to see for the remainder of 2015?
Paul Boothe
One of the things that people sometimes forget when they look at Canadian manufacturing is how much is influenced by what’s happening outside our borders. Like it or not, Canadian firms have one big customer, and it’s the U.S. One of the reasons that Canadian firms suffered so deeply in the recession and have been so slow to recover is that our customer hasn’t done that well.
Even as the U.S. recovers, the real growth in demand is going to come from emerging markets and new consumers in Latin America, China and India. One of the things that manufacturing in Canada is going to have to wrestle with is, “How do you get a share of those fast growing markets?”
Q: What impact do you see lower oil prices having on Canadians and the economy?
Adam Fremeth
The fact that we’re seeing low oil prices, and probably more importantly low oil prices for a sustained period of time, is going to have a big impact coast to coast.
Most directly, employment levels in Alberta specifically and the rest of the country as a whole will be impacted. A lot of temporary workers or workers commuting from different regions of the country to Northern Alberta are now being sent home.
The other big impact is how the oil price drop feeds into monetary policy directly in the country. There is an uncertainty that’s coming for Stephen Poloz and the Bank of Canada (BoC) from the fact that the price of oil is low and has remained volatile. It makes [the BoC’s] job a lot more difficult in determining where inflation is really going to go in the future.
Q: Recently, environmental trends have been geared towards implementing carbon taxes and a cap-and-trade system to limit greenhouse-gas emissions. How do you see these implementations affecting Canadians and the economy?
Paul Boothe
There’s a perception that Canadians need to choose between a growing economy and protecting the environment, and I believe that is simply not true – Putting a price on carbon protects the environment and creates opportunities. New opportunities lead to new products, which lead to profit, which leads to growth.
What does this economic change mean for Canadian business?
Boothe and Fremeth give us the top concerns that Canadian businesses need to watch for going during the remainder of the year.
Paul Boothe
Regarding U.S. and Canadian growth for the short- and medium-term, businesses are concerned with more sales to spur investment. The question is, Do governments have a strategy?
The same goes for the longer term. With the baby boomers retiring, businesses should be concerned with the fact that economic growth will fall from three to two per cent per annum. Is our government doing right by businesses to boost longer-term growth?
Adam Fremeth
First, businesses need to watch out for where the price of oil goes and what it does to the dollar and interest rates. Second, they need to be cautious of the outcome of the federal election and what a minority or even coalition government would bring. And third, businesses should prepare for the effects of the adoption and renewal of carbon policies in Ontario and Alberta.
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