Smoother sailing ahead
RAY TURCHANSKY Economists and investment managers are forecasting strong performances from the United States economy and stock markets in the next few years, and some believe Canada might outperform the U.S.
“We think the period we’ve been in for about five years, which was crisis-ridden, is drawing to a close,” said Jim Allworth, vice-chair of the RBC Dominion Securities investment strategy committee, at a Salloum Wealth Management Group gathering in St. Albert. “We’re entering a new period of transition that will run for several years, and at the end of the day we’ll be back to a period that’s more normal.
“The U.S. economy is going to speed up quite substantially next year and grow at a much faster rate than people have become accustomed to. It’s going to do that for three or four years at least, and by that time the U.S. will be where it would have been as if the financial crisis had never happened. This isn’t a message that is received very well.”
Indeed, doubters list numerous U. S. headwinds. Employment and housing growth are inconsistent, causing the U.S. Federal Reserve to keep buying Treasury bonds, arousing fears of inflation and interest rate hikes. This month’s government shutdown cost the economy a reported $24 billion, with another showdown looming in three months. And a national debt of $17 trillion grows by the second. Despite this backdrop, the S&P 500 and Dow Jones stock market indexes have set record highs this year, causing investors to fear a major correction.
Allworth says that when a recession involves a financial crisis, as occurred in the U.S. in late 2007, history shows the economy should be back on its longterm track nine years later, in 2016. But he says the best forecaster of the U.S. economy has traditionally been the U.S. Congressional Budget Office, which predicts the U.S. economy will grow 1.5 per cent his year, but will leap to 4.0 per cent annual growth for the following three-and-a-half years.
“If the American economy speeds up, so will ours. I just don’t think we’re going to feel very good about it, because it might not speed up where it’s expected or needed. B.C. and Alberta need more investment in energy, and it isn’t going to be as easy to access U.S. markets. By contrast, I think Central Canada is sitting in a good spot, manufacturing is going to do well because the U.S. is our best customer and it’s feeling better.”
He says central banks have kept interest rates abnormally low to allow banks to build up capital and consumers to get a handle on their debt, but when that’s accomplished, rates will return to normal.