SCHAUMBURG, Ill. Canada
has outperformed the United States since coming out of the 2009
recession, but while resource-rich western provinces are
thriving, manufacturing-oriented eastern provinces in are
struggling, according to one economist.
High commodity prices since 2003
have proven to be a boon to the Canadian dollar and such
provinces as Alberta, which are rich in oil and other natural
resources, according to Michael Gregory, senior economist and
head of Canadian rates strategy and managing director at BMO
Capital Markets Corp. But a strong Canadian dollar undercuts
the competitiveness of manufacturers in such areas as southern
Ontario, where current high costs make auto assembly plants,
for example, less competitive.
"One foot is in the fire. The
other is in the freezer. ... On average its the right
temperature, but it doesnt feel very good," Gregory said
at the Metals Service Center Institutes economic forecast
conference in Schaumburg, Ill.
Competitiveness will remain a
difficult issue for Canadian manufacturers, with the Canadian
dollar likely to remain near parity with the U.S. dollar for
the foreseeable future, he said. And it is not just natural
resources that are driving up the value of the Loonie; so are
investors who are pouring money into Canada as they seek a
"safe haven" for their assets, he said.
While both the United States and
Canada are in recovery, it doesnt feel like it in the
United States, Gregory said. Gross domestic product (GDP)
growth of 2 to 2.5 percent is sufficient in Canada, where
growth potential is less than that in the United States and
higher growth rates could cause inflationary pressure, Gregory
said. But in the United States, a growth rate of roughly 2
percent wont be enough to dent high unemployment rates,
he said, making more monetary easing from the U.S. Federal
Reserve likelyremarks that proved to be prescient
Thursday, when the Federal Reserve unveiled another round of
Gregory voiced some concern
about U.S. government debt levels, noting that the country was
coming uncomfortably close to the debt profiles of such
countries as Italy, Spain and Ireland. "You dont want to
be playing with those kids," he said.
Still, Gregory argued that the
outlook for the United States was hardly dire. The U.S. housing
sector, for example, should contribute to U.S. GDP in 2012 as
the sector grows for the first time in six years, he said,
while Canadas housing market is likely to contract as the
countrys policymakers aim to deflate a potential
As for other currencies, Gregory
said China is highly unlikely to let the yuan float against the
U.S. dollar in the near term. "The Chinese want to get there.
But their time frame is very, very long," he said.
Gregory also questioned
forecasts about the possibility of the eurozone breaking up,
noting that other European countries, notably Germany, will
likely bankroll a political solution.