Money Show - Michael Gregory

Michael Gregory is managing director and senior economist at BMO markets. His talk was called Canadian Economic Outlook: Parting the clouds.

Michael Gregory thinks that QE3 might give the US some traction. We got QE1 and QE2 because of worries about recession and depression. We got QE3 because of worries about jobs. The US has had productivity gains. It is producing more than before the recession but with less people. Some 4.5M jobs were lost in the US. The participation rate by population shows that employment is down.

In the housing market, sales and inventories are matching. House prices are up 2.7%. We will have traction in the US housing market when price appreciation is higher than the 30 year mortgage. US 30 year mortgages are at 3.4%.

He thinks that in Canada the housing market will have a soft landing. The US housing market is getting hotter and the Canadian housing market is getting cooler.

Canadian households have higher debt levels than in the US. Canada is going to underperform and going forward we should increase our US investing exposure.

He thinks that GDP growth in Canada will be 2.2% in 2012 and 2.0% in 2013. The US GDP growth will be 2.2% in 2012 and 2.3% in 2013.

He sees global headwinds. European area will bounce between chronic and acute problems. They seem now to be trying to balance austerity and growth. The Chinese economy will slow, but will have growth with inflation cooling. The new Chinese leaders will get credit for a soft landing. Oil prices will remain high but will be offset by natural gas prices.

The US has the fiscal cliff. If it goes over the cliff the US will have a recession. This is because of the $5.28B in measures that will be taken and this is 4.4% of the US GDP. The GDP hit will cause a recession because hit will be higher than GDP growth. Winston Churchill once said that the Americans will do the right thing after they have tried everything else.

He said that 9 of our 10 Canadian provinces are set to erase their deficits. He feels that there is little economic risk for Canada going forward. Emerging markets will continue to grow. It will be gas and grains that will feed inflation in Canada and US. Unemployment will fall in both Canada and US. The Bank of Canada will raise interest rates in 2013.

He says we have inflation when wages go up. Oil and food do not push inflation as they are just relative price changes. We can expect the Loonie to have parity into the future. The US's QEs will continue to debase its currency. There will be international money coming into Canada as Canada is a safe haven. Western Canada, B.C. to Manitoba, will lead growth in Canada (not Ontario or any province in the east).

He thinks that we have challenges of Global Government Debt, strong Canadian dollar, high household debt and weak productivity going forward. What we have going for us is Banking, foreign investment inflows, emerging market demands and a strong fiscal position.

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