‘Dismal scientists’ see an economy under pressure
If the 400 supporters of Jewish Vocational Services Toronto (JVS) were hoping to hear a stirring, optimistic forecast about Ontario’s economic prospects, they may have left the organization’s “strictly business” luncheon a little disappointed.
Thanks to a crisis in the Eurozone and muted job recovery in the United States, Canada’s economy is facing “uncertainty and headwinds,” said Sherry Cooper, executive vice-president and chief economist at BMO Financial Group.
Cooper, winner of the 2010 Lawrence Klein Award for U.S. forecasting and accuracy, said that while Canada is considered a safe haven for foreign investors, Ontario and Toronto are facing “tremendous challenges within the global economy.”
The global economy is fragile and uncertain, she said. Speaking the day after a huge sell-off in global markets, Cooper said the U.S. economy remains unstable with “muted” job creation.
The Canadian dollar had slipped to around 96.5 cents, a development that is “negative for our stock markets and macro-economy,” she said.
“That means employers will be more hesitant in hiring new workers.”
Unemployment in Toronto sits at 8.4 per cent, while in the rest of Canada the rate is 7.3 per cent.
Turning to Europe, she said that continent is being buffeted by troubling developments – Spanish banks are insolvent and the country’s housing sector is facing a crisis whose impact will be double that of the housing crash in the United States.
Canadian banks, in contrast, have prospered and are seen as the strongest regulated banking sector in the world, she said.
Speaking directly following Cooper, Avery Shenfeld, managing director and chief economist of CIBC World Markets, asked the audience, “Did Sherry scare you?
“Economics is called the dismal science, so it’s our nature to be worried,” he said.
Channelling Charles Dickens, Shenfeld said it was neither the best of times, nor the worst of times, but rather it’s now “the mushy middle.”
Economists are justly concerned about a European bank crisis and over a slowdown in the Chinese economy. China is an important market for our raw materials, so a slowdown there would affect Canada, he suggested.
Concerns that the United States may raise taxes and cut spending are keeping him awake at night, he said.
While both he and Cooper agreed that Canada weathered the recent economic storm better than most countries, unemployment for those under 25 remains stubbornly high, Shenfeld said.
Those 20-to-23-year-olds are not “lazy good-for-nothings.” They’re finding it hard to get jobs, he said.
The Bank of Canada has been keeping interest rates low in a bid to entice Canadians to borrow and spend, but Canadian banks have been careful to lend to those who are able to pay back the loans – a reference to U.S. banks who gave money to borrowers who were not credit-worthy.
Canada is doing better than Europe in bringing down its deficit, but within our borders, Ontario is running large deficit-to-GDP ratios, Shenfeld said.
That means the provincial government is constrained in what it can spend – “the cupboard is bare” – and “expect government restraint to be a bit of a drag on growth.”
During a question-and-answer period, Cooper was asked about youth unemployment. She’s not as pessimistic as others, Cooper said. Canada will experience a labour shortage in hot sectors of the economy, particularly in resources and technology.
Canadian young people need to be more mobile and move to where the jobs are. And they need to acquire the skills that are in demand. Both she and Shenfeld complimented JVS for helping prepare young people for the job market.
Asked about the “shrinking middle class,” Cooper said growth and innovation are the answer. She predicted job growth in health care and in caring for the elderly. “The possibilities for new businesses in those areas are tremendous,” she said.
Responding to another question about protecting failing industries, Cooper said, “I don’t think we should protect companies that can’t compete.”
Instead, Canada should focus on innovation, research and development, and investments in value-added businesses, “and that means training people.”
Asked about Ontario’s prospects, Shenfeld noted that the construction industry in Toronto is booming. The city will continue to be a destination for corporate head offices. To make senior executives comfortable, funds have to be invested in infrastructure, he said.
Amanda Lang, senior business reporter for CBC News and co-host of The Lang & O’Leary Exchange, MCed the event.
The program included the presentation of awards to D + H Limited Partnership, Tina Green, Jonathan Joblonowski, Eddie Lee, and to Brad Shaw and Hugo Pereira on behalf of Winners Store 226 and Winners/HomeSense 203/010.
JVS Toronto is a non-profit organization that helps people develop skills and achieve their employment and education goals. Since its inception in 1947, it has helped more than 500,000 people, including 23,000 in 2010-11.