The credit crisis has swept through the global economy like a raging forest fire, leaving nothing but piles of ashes where tall banking conglomerates once stood.
The question now on everyone’s mind is whether the fireweed has started to sprout, indicating the beginning of an economic recovery. Federal Reserve chairman Ben Bernanke, perhaps unaware of the amazing ability of the Yukon’s official plant to quickly repopulate scorched earth, has been using the more generic term “green shoots.” It has since been adopted by swarms of eco-pundits and policy makers. Google has more than 4 million references already.
Fireweed spotters have been encouraged by the stock markets. If you didn’t panic and sell the remnants of your portfolio in March, you would have enjoyed a tidy 35 per cent gain since. Some surveys of US consumer confidence are rebounding, albeit from low levels.
The Economist’s most recent commodity price index showed metals prices up six per cent in the last month. This is important since demand for commodities is linked to economic growth. Other statistics such as US job losses have reached “inflection points.” Jobs are still being lost, but not as many each month as over the winter.
The trend is in the right direction.
However, we should contain our glee about “inflection points.”
If your airplane is going down, having the pilot announce that you aren’t crashing quite as fast is of limited consolation. You can’t relax until you are actually going up again.
Unemployment is high. Canadian unemployment is 8.4 per cent, the highest in 11 years. Thirteen American cities have unemployment rates over 15 per cent which, while lower than the Great Depression, remain shockingly high.
Banks remain nervous about lending (and thereby supporting growth), since bankruptcies and loan losses are rising. The Economist’s commodity index mentioned above is still down 40 per cent compared to a year ago.
The Yukon remains relatively sheltered from these trends. Yukon government economists just released their annual forecast, based on a thoughtful look at local and international data.
The GDP is expected to increase three to four per cent in 2009, a marked contrast to shrinking economies elsewhere in Canada and around the world. We can thank federal transfer payments, which continue to rise and counteract shrinkage in other areas. Exploration is forecast to be down more than 60 per cent from 2008 and tourist visits are expected to be down around five per cent. Anecdotal reports from the cruise ship industry suggest even steeper declines might be coming.
One bright spot is the increased production from existing mines and investment in the Wolverine mine by its new Chinese owners.
Retail spending is expected to be flat and unemployment expected to stay in the seven per cent range, lower than the rest of the country but still higher than recent years.
Despite the best efforts of our economists, however, forecasting in the current volatile situation is difficult.
Famous British economist John Maynard Keynes once remarked that “the only function of economic forecasting is to make astrology look respectable.”
So what does all of this mean for Yukoners and the business and personal decisions we have to make over the next year?
The critical thing is to remember that the outlook is highly unpredictable. You have to make decisions that will serve you well in both upside and downside situations.
If you’re investing in the stock market in the hopes of a rapid rebound, make sure it is with money you are prepared to lose. An investor who put $100 into the Dow Jones Index at its Great Depression nadir in July 1932 would have seen the investment rise to $252 a year later.
But in 1938, after a series of false recoveries, it would only have gone up another $24. Many Japanese investors are still underwater despite buying “cheap” stocks on signs of green shoots in the Japanese economy over the last 10 years.
If you are running a tourism business or an enterprise serving the mining industry, be prepared for good and bad. Redouble your sales efforts to capture any upside that materializes, but cut costs and debt now to prepare for grimmer news later in the year.
Private-sector employees will have to remain cautious also and watch the health of their employer, because Yukon unemployment could climb higher.
Overall, we are all in an uncomfortable wait-and-see mode. The fireweed might already be growing fast. Or, as the Financial Times put it, those green shoots we see are just weeds growing in the rubble of the global financial system.
Keith Halliday is a Yukon economist and author of the Aurore of the
Yukon series of historical children’s adventure novels. His next book Game On Yukon! appears shortly.