U.S. economist sees Canadian potential

Add Joe Carson, the director of global economic research at New York- based money manager Alliance Bernstein to the list of those who expect a dismal economic performance in Canada in 2016.

Specifically Carson, who was in Toronto Thursday for a presentation and who expects that neither Donald Trump nor Hillary Clinton will be on the ticket for this year’s U. S. presidential election, expects the domestic economy will grow by 1.6 per cent this year.

While that expectation is slightly higher than growth in 2015 ( 1.30 per cent) Carson argues that growth will lag because of continued weakness in the energy and manufacturing sectors and high consumer debt levels.

And unlike half the Canadian economists, who according to a recent Bloomberg poll expect the Bank of Canada to cut the overnight rate to 0.25 per cent next week, Carson believes the central bank will wait.

He gave a couple reasons: the currency is headed lower, in part because the U. S. economy is growing stronger ( than Canada and indeed elsewhere the rest of the world as well) and the Federal Reserve has “normalized rates while others are cutting rates.” His other reason is the expectation that the federal government will provide some fiscal stimulus this year.

But Carson argues for all parties — business, labour and government — to take action and use the low cur- rency, combined with the country’s other advantages, to help bring jobs to Canada.

“You you can attract capital,” notes Carson, who argues all parties “should be out there” saying Canada is a great place to produce given its attractiveness from an investment perspective.

“You are in a very good position to help companies come in,” he said.

That view f l ows f rom Carlson’s assessment that through history, any country that has a strong manufacturing sector has better growth dynamics than one that doesn’t. “China elevated itself to a world power because it focused on building something. The value added by the manufacturing sector is extremely important for the well being and sustainability of an economy,” argued Carson, who unlike many financial economists spent time in industry, namely at General Motors.

“When you have a single commodity sector that is driving your growth, your growth is unbalanced and not sustainable, because it is tied to the price of that commodity,” argued Carson who points to the experience of Brazil.

One of the BRIC countries, Brazil rode the commodity boom through higher prices for its exports — but not through larger volumes. While it’s not a view that’s popular in an oil producing country like Canada, Carson argues that the lower oil price is a positive for the global economy. “The world is better off with oil at US$ 30– US$ 40 per barrel than it is at US$ 100. The positive influences outweigh the negatives,” he said.

Carson bases that view on the magnitude of the oil price decline (at least 60 per cent) and the small share ( about nine per cent) of the oil producers relative to the share held by the oil importers.

He refers to the switch as the largest transfer in recent history. “No tax cut, no central bank, can provide that sort of windfall to businesses and consumers,” he added.