Top strategist spells out why the world shrugs it off
Paul Luke
Province
The U.S. economy is in the toilet but the rest of the world doesn’t give a crap, a prominent Canadian economist says.
Fading U.S. economic clout means the rest of the world will shrug off the current American contraction, CIBC chief economist Jeff Rubin said yesterday.
“Nobody seems to care that the U.S. economy is in recession and that certainly has confused a lot of people in the financial markets,” Rubin said in Vancouver.
“Because the natural, knee-jerk reaction in financial markets is that when the U.S. economy goes into recession, you sell commodities because commodities are going to be a fatality of weaker U.S. consumer demand.”
Instead, key Canadian economies such as B.C. base metals, Albertan oil and Saskatchewan wheat have hit record highs as the U.S. economy loses ground, Rubin told the Vancouver Real Estate Forum.
From 2004 to 2007, the U.S. accounted for only 10 per cent of world GDP growth, Rubin said.
The emerging markets of Brazil, Russia, India and China, plus the mideast’s oil producers, accounted for about 37 per cent of GDP growth in this period.
The U.S. recession may shave growth rates in China and Russia by a half percentage point, he said.
“But when you’re talking about economies growing at six to 10 per cent, taking off a half point is almost an incidental rounding error,” he said.
“Recession in the United States has a trivial impact on the economic growth rates of the various economies in the world that are driving global economic growth.”
U.S. consumption of aluminum, nickel, copper, zinc and oil has been flat or has fallen over the last three years, he said.
But sharply rising consumption in oil-producing countries themselves will goad oil prices past $200 US a barrel over the next four to five years, Rubin said. “That would translate into about $2.25 a litre for regular gasoline in Canada,” he said.
The loonie will rise to $1.05 US over the next 12 months as energy prices rise and interest rates swing upward next year, Rubin said.
“One of the biggest surprises in 2009 will be how quickly interest rates in Canada come back,” Rubin said.
“Although the Bank of Canada may be cutting interest rates next month, they’ll be raising interest rates 100 basis points next year.”
Higher food and energy prices will push Canada’s inflation rate up to at least three per cent 12 months from now, he said.
© The Vancouver Province 2008