Difficult to predict economic future facing Omicron, says BMO chief economist

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In his forecast to the Greater Sudbury Chamber of Commerce, Douglas Porter says the ongoing pandemic “puts clear doubt” on forecasts of what the global economy could do in the coming year

BMO Financial Group’s chief economist told an audience at the Greater Sudbury Chamber of Commerce to prepare for a “bit of a roller coaster” in 2022 at a virtual event on Tuesday.

Porter, who has over 30 years of experience analyzing global economies and financial markets, shared his expert opinion at the chamber’s Economic Outlook 2022 event, held via Zoom on December 14.

During the event, he said it was “a very interesting and complex time” to present an economic outlook in the context of the COVID-19 pandemic.

“By far the dominant story has been the supply shortages we see around the world and the impact that has had on inflation,” Porter said.

“But the pandemic has come back in full force in the last couple of months, and I have to say that all the uncertainty about the new Omicron variant definitely casts clear doubt on some of the forecast numbers I’m going to give. you today.

He added that economists assume the new variant “will put sand in the cogs of the global economy over the next two months,” but nothing quite close to what the world experienced in the spring of 2020.

“That might still be enough to thwart the short-term economic outlook somewhat,” he said.

Porter said the supply chain issues had been “far-reaching” this year, but in many ways the supply in many industries “is actually operating at an” all-time high. ” .

“We’ve heard that everything from turkeys and Christmas trees to Halloween costumes have been affected by supply chain shortages,” he said.

“What’s happening is we’ve just had this global wave of demand for goods, for things that are absolutely overwhelming the existing supply chain. It just cannot keep up with the strength and demand that we are seeing globally. “

The reason for the demand, he said, is that the pandemic has made it difficult for people to pay for services, so they have instead increased spending on goods.

“It was hard to go on a trip. It was tough going to a Maple Leaf movie or game, so people were spending their money on buying goods, ”Porter said.

“Ultimately, we think it’s working out. Many industries are reporting that we are already past the worst in terms of supply chain issues, and many companies believe that will be closer to normal by the middle of next year. “

Although commodity prices experienced a “deep downdraft” at the start of the pandemic, Porter said he saw a rapid recovery in the second half of the year.

“In addition to this recovery, commodity prices have risen another 50% this year after the deepest post-war economic downturn,” he said.

“The prices are now 50% higher than before the start of the pandemic and that, to me, is remarkable.”

Porter said rising commodity prices, particularly the price of nickel and copper, bode well for Northern Ontario.

“Generally speaking, we’re not in the camp that calls for a supercycle or a return to the go-go days of 2007, but nickel is certainly a potential winner in demand for electric vehicles and batteries. There is also a demand for relatively strong stainless steel, ”he said.

“Copper is the only other base metal that could definitely be in a supercycle here and could do very well over time.”

Porter added that nickel “is a little harder to name because Indonesia is a wild card.”

“They make up about 40 percent of world production, and sometimes they can really drive the price of nickel based on the decisions they make,” he said.

“It makes it harder to call, in general, but on the demand side, we think it’s a very positive story. “

Porter said almost every major economy in the world has had a “good rebound” this year, but we still have a long way to go before we offset the damage from the pandemic.

“Realistically, some of the sectors most affected by the pandemic, such as travel, tourism and entertainment, will not return completely to normal, not completely, even by next year,” he said. he declares.

“We don’t expect to be dealing with a completely normal environment until the end of 2023 or even until 2024.”

The provinces that have been hit the hardest, he added, are oil producers like Saskatchewan and Alberta, while the provinces that have done well are the Maritimes and British Columbia.

“Ontario was pretty close to the middle of the field. Looking at next year, we think there is still some ground for Ontario to catch up with as we had more lasting restrictions than many other provinces, ”Porter said.

“We tend to grow a little faster than the national average, so we’re seeing slightly above average growth. “

Porter added that there are now more Canadians employed than there were before the pandemic.

“This story of the great resignation did not really apply to Canada. We haven’t seen a wave of early retirements, although there is plenty of anecdotal evidence that this has happened, ”he said.

“But in the big general statistics, it’s not there. In the maximum working age category between 16 and 64, the activity rate is higher than ever before. Canadians have remained much more engaged in the workforce.

Sudbury’s unemployment rate is about a percentage point higher than it was before the pandemic, Porter said.

“I would just treat these numbers with a little caution for two reasons. First of all, every time you go down to city level the numbers tend to bounce up a lot, ”he said.

“The other reason is that they are releasing city figures late – the statistics haven’t really caught up with reality.”

Porter said he suspected that over the next two months the numbers would be even closer to pre-pandemic levels.

The Chief Economist also addressed rising inflation rates at the virtual event.

“Right now in Canada we are facing the highest rate of inflation we have seen in 18 years,” he said, adding that he expects the rate to d November inflation is close to five percent.

“You have to go back to the early 1980s to see anything above that kind of range for Canadian inflation.

Porter said he “wouldn’t necessarily blame Ottawa”, but the government could help control inflation by “taking its foot off the accelerator.”

“We have always been above other forecasters warning that it could go on a bit longer and go a bit higher than is comfortable, but even we think inflation will tend to subside a bit over the course of time. next year, “he said.

“But we believe that even by the end of next year, inflation will still be higher than it was in the 10 years leading up to the pandemic.”

Porter said inflation has affected the price of things like natural gas, hotel and motel prices, and airline tickets, but calls them “transient.”

“I’m a little more concerned that some things might not be just a passing phase, like house prices, meat – and food in general,” he said.

“Many people have warned that food prices are expected to rise another seven percent next year.”

He added that he was “keeping a close eye” on the housing market.

“We’ve seen house prices rise 20% over the past year, and that’s just starting to fuel inflation,” Porter said.

“There is always a huge imbalance between supply and demand in the housing market. It’s still a sellers’ market. What will be needed to bring this market to heel will be interest rate hikes from the Bank of Canada. “

Sudbury, Porter said, is “right up there with everybody.”

“According to the latest statistics, house prices in Sudbury are up 27% from a year ago. Some of the best wins we’ve seen in the country are in some of Ontario’s smallest towns, ”he said.

Colleen Romaniuk is a reporter with the Local Journalism Initiative at the Sudbury Star. The Local Journalism Initiative is made possible through funding from the federal government.


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