The crumbling of America’s economic health has made major headlines north of the 49th–which is not surprising given that the United States is Canada’s largest trading ally.
The effects of what the Bank of Montreal’s chief economist Dr. Sherry Cooper dubbed “the most pervasive financial crisis in a generation” has already made economic waves in Canada. Ontario’s manufacturing industry cut 64,000 jobs last year, due largely to the devalued American dollar and a reduction in demand from U.S. customers, which some say begs the question of how Alberta–simultaneously the wealthiest and most expensive province–will be impacted by the American financial system.
“With all the investment that’s lined up for the oilsands and [related] infrastructure, the Alberta boom will continue,” said Fraser Institute senior economist Dr. Gerry Angevine.
CIBC World Market’s senior economist Benjamin Tal agreed in a CanWest interview last week, stating Western Canada will be the least affected because prices for its oil and gas commodities are set in global markets, which are increasingly less influenced by the U.S.
With job growth still strong and retail spending for Jan. showing a 1.5 per cent jump over last year, the Canadian economy does not seem to be in decline. Some economists, however, warn Alberta will be more affected by the U.S.’s troubles than many of their peers think.
“As an open trading economy, Canada is not immune to the growing uncertainty in the United States and on global markets,” said Federal Finance Department’s spokesman David Gamble.
Scotiabank senior economist Adrienne Warren agreed.
“Consumer confidence is waning, a harbinger of a more cautious retail sales trend, particularly if employment growth and/or home price appreciation finally begins to slow as we expect,” she said in a memo to clients last week.
Evidence suggests this is taking place in Alberta, as housing starts are expected to edge down in 2008, largely attributed to lower migration and declining housing affordability.
Complicating matters further is the U.S. Federal Reserve’s recent interest rate cut–with the Bank of Canada expected to follow suit in Apr.
“An interest rate cut will help junior oil and gas companies in Alberta as their cost of finance debt will be lowered,” said Angevine.
However, he expects to see a decline in housing prices over the next year as supply outpaces demand, in spite of any interest rate cuts.
“We’ve been flying on the back of the elephant and if the elephant decides to sleep, Albertans’ wealth will certainly be impacted,” he said.
More evidence comes in the form of the most recent statistics for Alberta’s $11 billion forestry industry, the province’s third-largest economic sector. Forestry exports fell more than $446 million in 2007 from the previous year’s, due to a high loonie and the downturn in the U.S. housing market.
“Alberta’s forest industry is in crisis,” said Alberta Forest Products Association executive director Brady Whittaker in a news release last week. “The situation is critical, not just for the economics of the forest products industry, or the 3,000 people that have lost their jobs in the past year, but also for the long-term sustainability and health of our province’s forests.”
Angevine explained the Alberta public had little to worry about.
“Overall, there may be a drag in the [Canadian] economy, but Albertans probably won’t notice it too much,” said Angevine. “We’re a fairly wealthy province, and we’ll probably stay that way for a while.”