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Varcoe: New year will ring in renewed optimism for Alberta economy – Calgary Herald

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Sunrise lights up the towers of the downtown Calgary skyline on Monday, December 16, 2019. Gavin Young/Postmedia


Here’s a small pick-me-up heading into a new year — two banks are projecting modest economic growth returning to Alberta in 2020 after a lethargic performance this year.

The improved outlook comes as oil prices have broken through US$60 a barrel in recent days, their highest point in three months.

TD Economics released a report this week forecasting Alberta’s gross domestic product will expand by 1.8 per cent next year, more than double the tepid rate over the past 12 months.

Similarly, a new RBC outlook projects the provincial economy will increase by 1.7 per cent in 2020 after “puny” growth this year.

“A good part of it is the fact 2019 was so sluggish. It’s a little bit of a comeback story,” RBC senior economist Robert Hogue said in an interview.

“By no means are we saying Alberta is out of the woods, but I think (there) will be more incremental improvements.”

There are still plenty of reasons to be cautious, however. The latest employment report saw 18,200 fewer jobs in November and the unemployment rate jumped up to 7.2 per cent.

Investment levels remain low, retail spending is down from a year earlier and drilling activity is off from 2018 levels.

But there have been recent improvements in areas such as energy prices and the outlook for global trade in 2020. While some local businesses have been cutting staff, other firms — such as in the technology area — are thriving and hiring.

Benevity, a Calgary-based firm that provides clients around the world with employee engagement software that facilitates giving and volunteering, is expanding quickly and will exit the year with about 650 employees.

“We continue to be quite bullish on our prospects,” CEO Bryan de Lottinville said Thursday.

“For us, a lot of the challenge is hiring people. I think we hired 240 people this year and are looking for probably another 175 or so next year.”


Bryan de Lottinville, president and CEO of Benevity, in the firm’s Calgary office.

Ted Rhodes /

Calgary Herald

In its economic outlook, TD said the province’s steps to ease government-mandated oil production quotas, “alongside a modest rebound in investment, are expected to underpin growth” next year.

As well, oil prices are headed in the right direction for the province.

Since OPEC and its partners decided earlier this month to deepen production cuts, crude prices have increased, with West Texas Intermediate crude for January delivery closing Thursday above US$61 a barrel on the New York Mercantile Exchange.

TD expects benchmark U.S. oil prices will keep trading in the range of $55 to $60 a barrel next year.

While the jobless rate remains high and employment gains will be modest in Alberta — at just 0.7 per cent next year, according to TD — some bright spots exist.

The construction of two massive petrochemical complexes in Alberta’s Industrial Heartland area is continuing. Housing starts are “gradually turning the corner, with modest gains in sales and prices anticipated” over the next few years, the report states.

“2019 was pretty lacklustre and we’ve seen that in a lot of indicators. Our 2020 forecast calls for a modest rebound,” TD economist Omar Abdelrahman said in an interview Thursday.

For its part, RBC predicts energy, manufacturing and construction, as well as the labour market, will improve in 2020.

Incremental gains in pipeline take-away capacity should help ease the transportation bottlenecks and see capital investment begin to pick up.

“Alberta’s recovery has been frustratingly slow, but 2020 promises to kick things into a higher gear,” the RBC forecast states.

The key test for Alberta in the coming year will be on the investment and jobs fronts.

ATB Financial is forecasting only 0.9 per cent economic growth for next year. It assumes worries about when additional pipeline capacity is built will act as a constraint, keeping investment levels soft.

Yet, as ATB economists pointed out Thursday in a blog, there are some signs headway is being made in the economy.

Progress continues on the Line 3 replacement project in the U.S. and the Trans Mountain pipeline expansion, OPEC cuts mean “the threat of another global oil glut is being held in check, at least for now,” while fears of a global recession and trade war are diminishing.

“There are some positive stories out there,” Ken Kobly of the Alberta Chambers of Commerce said last week.

“We are so used to hearing about all of the big things that are not doing well or not happening, and that sort of drowns out some of the small gains that we are making.”


An aerial view of construction progress on the terminal and tank farm on Burnaby Mountain for Trans Mountain’s pipeline expansion as of November, 2019. Handout courtesy of Trans Mountain.

PNG

Newcomers continue to move into the city and the total number of people employed in Calgary sat at 877,000 last month, up almost 34,000 from a year ago.

Some companies are succeeding in this tough environment. For example, payments technology firm Helcim expects to add about 25 people next year and is moving into a new downtown office.

“We are excited about our outlook,” said Helcim CEO Nicolas Beique.

“Next year is when some big changes are coming to our organization that we think will fuel a lot more growth.”

At Benevity, much of its work is for international clients, but de Lottinville also feels a little more optimistic than last year about the prospects for the provincial economy.

“We have to create more narrative around the successful companies that are scaling (up) in a diversified context, whether those are in the energy sector or elsewhere. If all you hear is doom and gloom, you will be communicating that,” he said.

“Our clients, some of the local ones, are optimistic that most of the real challenges are behind us and they’re trying not to look backward, but look forward.”

A new year is coming soon. Hopefully, so is a new direction for the Alberta economy.

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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Economy

Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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Economy

China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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Why Trump’s re-election could hit Europe’s economy by at least €150 billion

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A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.

 

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