This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

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Construction Industry Forecasts

Notes from Alex Carrick - May 14, 2010

Alex Carrick
A world economy on the mend, but also in flux

The U.S. and Canadian economies are currently moving ahead about as quickly as is humanly possible. Canada added 109,000 jobs in April. The U.S. created 290,000 new positions. However, that still leaves the U.S. about 8.0 million positions below where it was when the recession started in early 2008. Let’s look at some of the other issues facing our economies.

Investor confidence, as reflected in North American stock market indices, has been on the upswing. Consumer confidence still languishes badly in the U.S., but it will keep on gradually improving provided employment continues to pick up and house prices trend higher.

The U.S. weekly initial jobless claims numbers, while they have been heading downward, are still not outstanding. They remain only about 50,000 below the half-million mark which is usually taken to be the demarcation point above which new firings exceed new hirings.

Unfortunately, the world economy is not necessarily out of the woods yet. Key issues involve uncertainty about government actions in the arenas of financial reform and prosecution of certain banking giants. Goldman Sachs, Morgan Stanley and other institutions are under investigation with respect to their actions during the heady days of sub-prime mortgage underwriting.

However, the biggest potential danger can be captured in the common phrase, “chickens coming home to roost.” Huge wads of government stimulus money were scattered around to pull almost every national economy out of recession. But now what? Governments around the world have been left deeply in debt. Deficit-to-debt ratios in almost all industrialized nations are in double digit percentages (i.e. 10% and higher). In a perhaps fitting note of irony, many emerging nations with more isolated financial sectors are not experiencing fiscal problems to the same degree.

The most immediate and apparent impact has been in Europe. The degree to which Greece has descended into financial trouble was first obscured by the authorities. Then in catch-up mode, and under intense pressure from creditors outside the country, tough austerity measures were introduced to reduce debt to GDP. These are being stiffly opposed by the citizenry. There is a Catch 22. The austerity measures will make it harder to achieve the kinds of GDP growth needed to lower the debt. Usually, more national output (GDP) is needed to rake in more tax revenue.

For some other nations in financial distress in Europe, it is not so much a matter of their finances precluding borrowing. For a nation such as Portugal, for example, there’s the fact that its growth prospects remain muted for the foreseeable future. Economic re-structuring will be required.

It is known that the strongest economy in Europe, Germany, does not approve of the kinds of financial backing being offered by other Euro nations, the International Monetary Fund and the European Central Bank to debtor nations. The notion that the ECB buy the government bonds of distressed countries is a risky path that may leave more nations hung out to dry in the long run.

Until most recently, the strength of the Euro has rested on its close adherence to German fiscal conservatism. Acceptance under the Euro’s umbrella used to be conditional on a nation keeping its deficit-to-GDP ratio at 3% or lower. It served the currency well. With the abandonment of that requirement in crisis times, the Euro is entering a new phase. Talk of jettisoning Greece from the Euro accord, or the possible dissolution of the Euro zone, is not completely far-fetched.

Elsewhere, and according to only some analysts, the overheated Chinese economy may be headed for a hard landing. That nation’s most recent quarterly real GDP growth rate of 12% is threatening to run away with asset prices. Speculation in stocks and properties will need to be reined in or a crash may be the ultimate result. Other Southeast Asian economies are roaring ahead, as are Australia and Japan, but they are riding on the back of the Chinese dragon.

The U.S. needs more jobs. Canada needs more uplift to commodity prices. Both nations will record strong GDP numbers this year. That much is guaranteed based on the early 2010 results. There is a possibility of several difficult quarters coming to pass at the end of this year and early in 2011. It won’t be the dreaded double dip, but it may be a pause – hopefully one that refreshes.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.


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Member Comments

Posted by Kayden Q
Just like what many says, US economy is still far from recovery. It has been posited many times the United States functions as a "plutonomy.” The word plutonomy is a portmanteau of “plutocracy” and “economy,” meaning an economy depending on a plutocracy, which means the richest few control the economy. It's been argued that it was always that way. Recently released figures indicate that recent booms within the economy had almost every little thing to do with the richest few.
Posted by Janus Q
Hmm sounds good, after almost 2 years of waiting finally economy seem to be unwavering; hopefully it will be the beginning of new hope new endeavor, to start a new life. Let’s flush out all the negativity for the past two years, new life is just beginning. Every country should adapt their own economic development plan that will sustain the better country a better economy. Lets also wish that the disaster of oil spill will be resolved. Oil companies are highly liable for the oil clean up. A thorough investigation are ought to be implemented to determine the real cause of oil spill.
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Read Other Recent Alex Carrick Posts

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04/18 - U.S. Inflation Low in March; Canada’s Central Bank Looking to Raise Rates

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