Drama in Eurozone makes for uncertainty

Jock Finlayson, executive vice president and chief policy officer, Business Council of B.C.,

Jock Finlayson, executive vice president and chief policy officer, Business Council of B.C., is predicting the economic growth in Canada will be weaker in 2012 than in 2011.

Finlayson spoke about the global and local economy during the Natural Resource Forum Wednesday. He said, currently the economic environment is turbulent with a lot of drama in the Euro zone. Those problems reached a crescendo in autumn, he added, and the likelihood is that area is heading into a recession.

The U.S. is doing better which is encouraging news locally, however it, like most other countries, is still struggling.

The global economy is still growing, but slowly.

The emerging markets are doing better, though China’s economy is slowing down somewhat, however it is still growing far more rapidly than elsewhere in the world. Japan is recovering from the natural disaster that country suffered.

The positive news, he said, is for those interested in borrowing right now.

“If you are a borrower, you will benefit from very low interest rates,” he said.

Debt, including household and corporate, is one of the core issues facing the world economy today. The cost of government borrowing is tremendously divergent. Greece is at 30 per cent, an amount Finlayson said is unsustainable. A number of other countries also have punishing rates. Conversely, Canada, the U.S. and the U.K. are at two per cent.

“So investors are lined up around the block,” he said. “When the rates march back up to four or five per cent you will know we are back to normal.”

Many onlookers have speculated as to why the Euro zone hasn’t come together to deal with their issues, understanding the key to a solution would lie with Germany, Finlayson said. However, he added, the chancellor of Germany has made it clear she doesn’t want her country to come to the table and underwrite a debt caused by fiscal irresponsibility in other countries.

The outlook for the U.S. in 2012 will be muted, first because American households are de-leveraging and second because the woes in Europe will spill over into that country. There will be growing fiscal austerity though corporate America is in great shape, with two trillion in cash to invest, however the environment is missing for them to take risks at the moment.

The job crisis in the U.S. is the worst since World War 11, with 15 per cent of the population effectively unemployed. The unrest in that country is all signs of the stress and tension in the labour market, but things are finally beginning to thaw out.

The net worth of houses has decreased, and in fact there has been an epic slump in real estate, something which was not mirrored in Canada. Incomes have fallen seven per cent since 1999, combined with a 20 per cent drop in net worth since that year, affecting household well-being.

In Canada, the real GDP is a bit weaker but there will be some improvement by 2013.

“We are not in recession. We are holding our own,” he said.

The province is doing better than the national average.

With continued growth in Asia far outpacing growth in Europe, North America and Japan, emerging markets have a decisive strategic advantage going into the future.

“China’s economy surpasses the U.S. in economic size,” Finlayson said.

In fact, over the next four decades it is expected growth for emerging markets will occur at between 300 and 700 per cent, compared to about 80 per cent in the U.S.

“Resources are in a strong demand globally. The rise os Asia is already very evident in B.C,” he said.