An economic forecast for 2017

Benjamin Tal—Deputy Chief Economist, CIBC World Markets—recently spoke in Surrey and gave some insight into what’s going on in the world around us, especially considering “The Donald” taking office.

Mr. Tal always has interesting points that are helpful as general information and has an ability to explain complex information in layman’s terms, which I appreciate.

These are the main takeaways from his January 25 speech, so that you are up-to-speed:

• Canada is extremely educated, but we also have the highest population of educated people living in poverty. The main cause of this is that people are choosing to be educated in areas that don’t correlate to jobs; we need more focus on employment specific education.

• The global economy is slowing down along with productivity as our population ages. Innovation doesn’t have the same impact today as it did in the past. Planes, cars, the internet, and cell phones, for example, played major roles in changing the way we live and do business, whereas much of the innovation today is improvements and superficial changes to already existing products and services.

• Japan has been in a disinflationary period for 22 years and have said for many years that rates will rise next year; yet they never rise. We can expect much of the same here in Canada, and when rates do rise, they will slowly.

• The Euro is vulnerable in 2017 because of three major elections, with the upcoming German election in September slated as the largest. This event will cause some instability and it’s best to wait on buying the Euro until the elections are over.

• There is currently a 22% per year rise in credit in China, with 80% of it in real estate.

• The main reason China is having money leave the country, is the risk of currency devaluation.

• Mr. Tal would suggest owning energy this year as President Trump is adding subsidies to energy companies and putting less into alternate energy sources.

• There are more people collecting disability benefits in the US than there are production workers in the whole country.

• President Trump is planning to spend $100 Billion per year for the next 10 years. He is stimulating an economy that isn’t in a recession, and every one of his policies are inflationary. This means the Feds will likely be raising rates.

• Mr. Tal prefers the stock market over bonds while Trump is President.

• Mr. Tal expects President Trump to deregulate energy and the financial sector. Tax cuts are expected as well, but 70% of the tax cuts will go to the top 10%. This will have little impact on the GDP as the rich don’t really need the money, so instead of spending it and boosting the economy, they will likely save it.

• 8% of US auto exports go to China and they are a very important trade partner with a wealthy population that wants to import quality products.  Imposing a trade war is dangerous and Trump needs to be careful.

• NAFTA will either be killed or renegotiated, but either way, the US benefits, Canada loses a little, and Mexico loses a lot.

• The US dollar is rising because of Trump’s policies, so exports are slowing.

• Canada should be booming right now since our dollar has dropped. We aren’t, however, because when the dollar was at par, we lost 10% of our manufacturing as Canada was too expensive. We lost out to Mexico, and that work has not returned.

• 70% of what we sell to the US is in manufacturing which is slowing in the US because of the high dollar.

• The Bank of Canada can no longer stimulate the economy by lowering rates, as they are already so low. We will likely see investment in infrastructure in 2018.

• $750 billion will exchange hands via inheritance as the older generation passes on, creating the largest transfer of wealth ever. Unfortunately for the economy most of this money will be going to children between the ages of 55-65, and they are more likely to save this money than spend it.

• Mr. Tal sees Vancouver real estate as twice as volatile as Toronto’s, since our market fluctuations tend to be quite large. Vancouver real estate can typically be explained by talking about supply, but 2016 was different due to foreign demand. He believes foreign buyers are simply waiting to see what the effect of the foreign buyer’s tax will be, and expects the overall impact to be less than expected.

I would be happy to discuss any of these points further—feel free to contact me with any questions or comments!