Canadian Economic Outlook for 2013: Cautious Optimism

The Bank of Canada announced this week that Canadian businesses are optimistic about 2013.  The economy is expected to grow modestly this year with most of the growth in the manufacturing sectors in Eastern and Central Canada.

http://business.financialpost.com/2013/01/14/canadian-businesses-see-brighter-future-bank-of-canada-reports/?__lsa=bc90-e162

Meanwhile, the Economic Club of Canada predicts that the U.S. will have a 'surge' in the economy for 2013 and this will benefit Canada.  Canada's economy will get a boost in exports, which supports the Bank of Canada's prediction of growth in the manufacturing sector.

This is good news for Canadian businesses, not only for those in the manufacturing sector but also for support services.  With an increase in demand, businesses will likely see modest growth over 2013.

However, one must wonder if the rosy predictions are merely temporary?  With governments continuing to run deficits, with debts piling up and with consumer debt at an all time high, one wonders how long we can continue before interest payments overwhelm us.  When growth is being financed by debt, there is a problem.  Whether or not Canada (and the West) can manage both growth and debt reduction remains to be seen. 

A Double Dip Recession?

Are we heading for another recession? Based upon the most recent headlines, some experts say yes. Still, it's far from a certainty and may simply be a minor correction before the economy begins a slow recovery.

It is possible that the worst is over in terms of housing prices, job losses and the hit to savings and retirement funds. On the other hand, few economists predicted the housing crisis or the worldwide fallout or the subprime mortgage crisis, so one can be forgiven for being skeptical about claims about 'market corrections'.

Given the US debt crisis, the EU debt crisis, the weakening US dollar and the fall in the stock markets, many are speculating another Great Depression. Along with calls to move back to the Gold Standard, is it any wonder than many fear another global meltdown?

Whether this will happen is anyone's guess but with the US debt at over $12 trillion and with record consumer debt, it may appear inevitable that the modest gains in the economy will be rolled back.

Nevertheless, it is likely that we will narrowly avoid dipping into another recession, but it is clear that we are not out of the woods yet.

Economic recovery will be slow according to Buffett

Warren Buffett blamed healthcare for dragging down the economy. The U.S. healhcare is bloated and at 17% of GDP, is a much higher cost than healthcare costs of other countries.

Warren supported Obama's planned reforms but said he would prefer 'Plan C', one that focused on cutting costs.

Warren likened healthcare as a 'tapeworm' and said it was 'eating at our economic body'.

While the bloated healthcare in the U.S. is a serious problem, it is almost certainly not the only issue facing the U.S. economy. A massive debt, unemployment, consumer confidence, a housing crisis, not to mention a costly war, could all be added to the list.

U.S. Debt Approaching $12 Trillion

I had to post this link to the new Calculator developed that has 16 digits...in order to show the U.S. debt which was $11,792,918,170,836.43 on Sept 1st.

this is a sobering thought in light of the rosy economic predictions coming out of Washington. Layoffs have continued, although at a slower rate but there are some signs that a recovery is beginning.

The stimulus package has had a positive impact and this will likely lead to improvements next year. Vehicle sales were positively impacted by the 'Cash for Clunkers' program and total vehicle sales will likely be higher next year. However, recovery is not going to happen overnight.

Still, in case some of you are thinking that everything is fine again, take a look at the debt. You may have to purchase the new calculator as most calculators are unable to display the number.

More trouble for the Auto Sector

A sector which, in 2001, employed, either directly or indirectly, over 7 million North Americans, is facing further trouble. Since December 2007, the auto sector has lost 27% of its jobs. That's almost 2 million people.

With Chrysler going into bankruptcy protection, the number of layoffs are going to climb. Everyone is hoping the merger with FIAT will save the day, but the reality is, the next several months are going to be tough. There is certainly good motivation for both automakers to work together: FIAT is a small, niche player and access to a greater variety of brands and a huge North American network will certainly be a boost, while Chrysler's motivation is more obvious - survival.

Still, deals can fall apart. Implementation may be unsuccessful. Supplier disruption is guaranteed as are supplier bankruptcies. How this will impact all the big players is anyone's guess but it won't be pretty.

Further government financing is inevitable.

Who's fault is it? Well, there is enough blame to go around including bad management, bloated unions, foreign competition, etc. Now, President Obama is blaming the secured debt holders for the failure to reach a deal. He's right of course but at issue is whether or not they can get a better deal in bankruptcy court than what Obama has so far offered (33 cents on the dollar).

Let's see if Obama's strategy of calling them 'vultures' will force concessions.

Regardless, the future of the auto sector is far from certain and, for the short term, additional pain is all but guaranteed.

GM going bankrupt and Chrysler all but finished

Mark Zandi, Chief Economist of Moody's Economy.com says GM will file for Chapter 11 protection and that Chrysler will broken up and sold to other companies.

Basically, Ford will remain the sole American auto manufacturer...at least on the current scale. GM will come back as a 'shadow of itself'.

What is most interesting is Zandi's final point about the lesson in all of this: if you have a fundamental problem in your business, it's better to fix it sooner rather than later.

GM was running a massive debt before the recession. All that has happened is that those companies that were poorly managed and in poor financial health have now been exposed.

The question is this: will other companies in other industries learn anything from this?