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Economic outlook gets mixed reviews at APTA summit

MONCTON, N.B. - Although Canada's economic standing remains fairly strong following the global recession, its close trading relationship with the US still has a bearing on this country's economic futu...

MONCTON, N.B. –Although Canada’s economic standing remains fairly strong following the global recession, its close trading relationship with the US still has a bearing on this country’s economic future, according to Earl Sweet, BMO senior economist and managing director.

Sweet told delegates at the recent Atlantic Provinces Trucking Association (APTA) Transportation Summit in Moncton that the global economy is slowly recovering “from a deep recession powered by energy from Asia and some parts of Latin America.”

But although he said North America has performed better than many of its European counterparts, his presentation was littered with cautionary comments about the US economic situation and Canada’s ties to the American marketplace.

“Despite strong fundamentals in Canada, we are locked at the hip with the US,” and despite Canada’s financial strengths, it is heavily influenced by what happens in the US, he said.

Sweet added Canadian banks and financial institutions are in good shape, the country has a strong fiscal policy and Canada’s labour force remains strong.

But he pointed out there will be challenges ahead. He anticipates a slowing of economic growth “as government stimulus is cut back” and he warned that as the Canadian dollar strengthens, with the upward trend expected to continue, Canada will move up interest rates ahead of American financial institutions which will not be good for manufacturers.

Other challenges he mentioned are the anticipated sluggish recovery in the US and the American attitude toward trade protectionism.

He also expressed concern for the latest housing foreclosure issue now under investigation in all 50 states.

There are allegations that US banks may have failed to review foreclosure documents properly or filed false information when foreclosing on properties.

“This is serious stuff. If banks have to buy back those mortgages, it could have serious implications for the overall economy,” he said.

He countered that Canada’s housing sector is “rock solid.”

“Mortgages are very strong compared to the US and our household debt is underwritten by a strong Canadian banking system,” said Sweet.

Canada’s corporate balance sheet “is healthy” but there is a “huge amount of cash” on-hand, suggesting businesses are hanging on to their money rather than investing it.

Sweet said the overall global economy will grow about 4% this year and in 2011 with China and India ahead of that growth curve with growth rates of 10% and 7% respectively.

Canada, with its strong export commodities situation, will benefit from the Asian growth, he said.

Those countries have a strong middle class and are experiencing good internal growth “so that should keep the commodities demand strong and good for Canada,” Sweet said.

That demand will also be good for the trucking industry, which handles a large volume of imports and exports.

Industry officials attending the summit were encouraged with Sweet’s overall message.

Wes Armour, president and CEO of Armour Transportation Systems, said what he heard was “quite encouraging.”

“Obviously, as he indicated, the US has a big impact on our future here in Canada. But certainly this country looks to be in good shape and things look pretty positive. I don’t think we are going to see huge growth real quickly but at least it is going to be positive growth,” he said. “In the trucking industry, our business depends totally on the how well the economy does. If our customers are busy, we are busy and if our customers are healthy, we are healthy. And the good part is it looks like the debt in Canada is manageable for business and homeowners as well, so I think there are going to be some good opportunities here, particularly in this region.”

However, Armour expressed concern about the strengthening Canadian dollar.

“That is a real fear. Looking at it from a position of greed, the stronger the Canadian dollar, the less we pay for our equipment and the less we pay for our fuel but if we don’t have any customers because they are not able to sell in the US, then obviously that doesn’t really matter because we won’t have the volume to go there,” he said.

“We have been through this with a high Canadian dollar before and it does have a major impact on Canadian manufacturers,” he added.

Paul Easson, general manager of Eassons Transport in Berwick, N.S. said what he took from Sweet’s presentation was “he thought that trucking industry would be a good place to invest and that the future looks good for us. The only reservation he had was if we get a double-dip recession, that could be bad. But other than that I think he was positive on the Canadian trucking industry.”

Like Armour, however, Easson was concerned about a strong loonie.

“I am very concerned. If it gets stronger it makes it harder for my customers, the manufacturers of goods who are trying to sell in the US. If they can’t sell, I can’t truck it.”

Sweet’s message, however, didn’t hit a positive note with Jean Marc Picard, executive director of the APTA.

“I would say I was discouraged. It’s not the news we were hoping for, obviously. Everybody is optimistic things are going to turn around but it seems it will take longer than anticipated, so that put a bit of a damper on everybody’s perception of things. But it is the big picture and it might not reflect that way in Atlantic Canada, but it certainly is a good indication,” he said.

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