Note, the word “weak” came up a lot during Farrow’s presentation.
“We’re not going to see any pick up in the economy over the next six to nine months,” Farrow advised. As she proceeded through numerous slides, it became apparent that—with the exception of India—the world is, at best, just barely chugging along. “Some places in Europe still have 30% to 40% youth unemployment,” she noted.
The central issue, said Farrow, is weak global demand. We have excess capacity globally, and world trade remains weak. China is not the engine it was in years past, Brazil has hit bottom, and Japan and France are basket cases, she said.
Farrow figured the Canadian dollar will settle into $0.74 to $0.78 on the U.S. dollar. “We’re not going to be having cheap holidays in Florida this winter,” Farrow said.
“The U.S. economy will be picking up in 2017, and the U.S. consumer is in good shape.” As for Canadian consumers, “household debt is still quite bad”.
Speaking of debt levels, Farrow noted that, federally, Canada’s debt levels “are under control”, but the situation in, say, Ontario—where the debt is at $300 billion—“is horrendous”.
“We are at historically low interest rates,” Farrow said, and when they eventually rise, they won’t rise quickly. “It will be slow.” With these interest rates, Farrow said it’s a good time “for governments to spend on infrastructure”.
“The Liberal government has done a good job raising or fixing Canada’s profile internationally. Now it’s time to focus on domestic issues. Large infrastructure projects will be helpful,” she said. “The [federal] Liberals’ next budget will be key. They will map out their long-term infrastructure spend.”
Echoing Farrow’s sentiment was Don Leavens, chief economist with NEMA (National Electrical Manufacturers Association in the States).
“We have excess manufacturing capacity across the board,” said Leavens, and a NEMA slide he put up showing U.S. Electrical Equipment Shipments backed his statement. The slide showed 2016 experiencing a big contraction—a particularly rough year for electrical manufacturers:
2015 - 1.9%
2016 - 6.4% (forecast)
2017 + 1.9% (forecast)
Lighting is the most dynamic sector within NEMA, said Leavens, yet that sector will experience flat growth. Core equipment, like transformers, will also see flat growth going into 2017, as will Miscellaneous equipment, like wire and cable.
These numbers help explain what we’ve been feeling all year.
“Canada needs a new economic driver,” Farrow insisted, who champions our need to get pipelines built. “We need to get our oil to the tidal waters of the Atlantic and Pacific [yet] our government has no backbone to make a decision.”