Commodities will continue to buoy Canada

Canadian economic will continue through 2012, with Alberta providing much of that growth, according to Craig Wright, executive vice-president and chief economist at RBC Financial Group.

“We are the optimists on Bay Street,” said Wright, a keynote speaker at Economic Outlook 2012 – Headed in the Right Direction? an event presented by the Laurier Centre for Economic Research & Policy Analysis, Tuesday at the Calgary Petroleum Club.

It was the first such event held in Calgary as part of The Laurier School of Business & Economics long-running Economic Outlook speaker series.

For his part, Wright sees 2.6% growth prospects for Canada—slightly higher than the consensus view. Most of the strength continues to be in the west, he noted, with Alberta leading the pack with a projected growth rate of 3.9% in 2012 and 2013.

Wright sees continued firm commodity prices, with $100 a barrel oil, and the Canadian dollar continuing to hold at around parity, plus or minus a couple of cents. But despite the high dollar, he warned that at some point, “interest rates will have to move higher.”

On the global stage, ongoing challenges and uncertainty suggest a volatile recovery period.

“As we move ahead, it’s not a terribly robust growth story,” Wright says, predicting 3.5% global growth this year and 4% next year, tilting toward the emerging economies. “China will be one of the lead stories,” he said, projecting a soft landing for China with a growth rate of 8.5% this year.

For the U.S., Wright expects “a very modest recovery as we go forward, but a recovery nonetheless,” with “reasonable growth” of 2.5%.

His biggest concern remains the Eurozone. While “policymakers in Europe are moving in the right direction,” longer term, Wright thinks that Europe will remain weak with modest growth going forward.

Jeffry Frieden, Harvard professor of government, who specializes in the politics of international monetary and financial relations, said troubled times will persist in developed economies.

“This has been the deepest economic downturn since the 1930s, and by far the longest lasting. It’s not acting like a normal cyclical recession,” said the co-author of Lost Decades: The Making of America’s Debt Crisis and the Long Recovery. “What the U.S., and to a large extent Europe, are dealing with is a classic debt crisis. We face a difficult next few years, as both debtor and creditor countries rebalance.”

The U.S. must deal with short term macroeconomic problems to ensure the sluggish recovery continues, but the long term problems are severe.”

According to Frieden, the U.S. must either increase taxes or reduce spending. America needs substantial tax reform, an increase in tax rates and some control over entitlement spending, he said. But that’s not happening, because of politics.

“We have an environment in which major political issues have not been confronted by the political class, and major decisions that have to be made are not even on the table,” he said.

“What we have, is a continuation of partisan infighting over how to frame the debate. The polarization of American society and partisan gridlock means that few, if any serious solutions are being put on the table and little if any progress is being made to resolve our problems. I’m very concerned about the future of the U.S., and troubled times for the U.S. mean troubled times for Canada and the rest of the world as well.”

During a moderator-led discussion, Frieden added that Canada will face the impact of a very slow recovery in the U.S., “perhaps with less of a direct impact than other exporters to the U.S.”