Yukonomist: Un train peut en cacher un autre

Yukonomist Keith Halliday

Anyone who has driven in France will remember the warning signs at railway crossings: Un train peut en cacher un autre.

Just because one train has passed doesn’t mean it is safe to cross. As the saying tells us, another could be right behind (“one train can hide another”).

As we look to see what 2022 holds for the Yukon economy, the same principle applies. The new Omicron variant is the immediate worry, but there are more big economic risks coming down the track. The stability of the transfer payment may mean the Yukon government has a rock solid income this year, but individual Yukoners may not be so lucky.

As for COVID-19, the tourism industry risks another pummeling this summer, depending on how long the wave lasts and how it affects travel plans by domestic and international travelers.

COVID-19’s supply chain ructions are affecting many industries in the Yukon. Higher prices and shipping delays for everything from D9 dozers to structural steel will delay construction and infrastructure projects and make them more expensive. The St Louis Federal Reserve’s data on construction machinery parts, for example, shows prices have gone up more in the last eighteen months than in the previous seven years.

In the longer run, however, there are a mix of upside and downside risks for the Yukon economy.

For Yukon miners, today’s clouds may have a copper lining. In 2021, copper surged to over US$4 per pound from around US$3 per pound, where it was for most of the last five years. Copper and other industrial metals may be in short supply for years as governments spend on infrastructure to stimulate their post-pandemic economies. Climate policies are expected to spark trillions in global investment in metal-heavy renewable energy and electrical equipment.

If the Yukon can stickhandle some copper mines through the many pylons of its approval processes, they could enjoy decades of sustained demand.

The story has been more muted for gold. The Yukon’s favourite metal saw its price fall in 2021, despite hopes that rising inflation would prompt investors to fill their safety deposit boxes. Market watchers say some gold investors switched out of gold and into cryptocurrency investments. Nonetheless, gold remains around US$1800 per ounce. Twenty years ago, it was under US$300 per ounce. Even in the mid-2010s, gold bounced around US$1300 per ounce.

Gold doesn’t produce quarterly income so prices may suffer as interest rates rise, as many expect. Nonetheless, prices look solid for Yukon placer and hardrock miners at least in the near term.

Miners (and the rest of us) also watch gasoline and diesel prices closely. West Texas crude was under US$50 per barrel at the start of 2021, and ended the year around US$75 per barrel. The carbon tax will rise $10 per tonne in 2022, and futures markets do not predict a substantial fall in oil prices.

The Yukon’s dependence on oil for transport and heat means this will siphon significant funds out of Yukon wallets in 2022.

Those interest rate worries mentioned above are linked to broader uncertainties in the financial system. They will affect any Yukoner paying a mortgage or saving for the future, which is nearly everyone.

Central banks are trying to find the Goldilocks path between over-stimulating recovering economies and removing support too early as Omicron spreads. Most big global economies, including Canada’s, are now producing more output than before COVID-19. So there is an argument that the ultra-low interest rates borrowers have enjoyed should be raised before inflation gets out of hand. On the other side, the global economy faces a succession of oncoming freight trains full of economic issues.

The OECD’s latest outlook for 2022 says that the global recovery is continuing, but slowing down. Supply chain problems and labour shortages are limiting output. Energy and commodity prices are biting into incomes and making investments less economic.

The global recovery is also highly uneven.

Rich countries like Canada have rolled out double vaccinations and boosters. Our World In Data says that as of the end of 2021, Canada had administered 181 vaccine doses per 100 people. However, many countries have not been able to do this. Nigeria, a country of over 200 million people, has only been able to give 7 jabs per 100 Nigerians. The virus is rampant.

Economists are also watching the Chinese economy closely. The country’s hot property market has been wobbling, and some of the largest Chinese real estate companies have central bankers worried. Should they collapse, the ripples could be felt worldwide. The OECD says a China shock could shave a full percentage point off global growth in 2022.

What does all this mean for Yukoners?

Economic forecasts are even more uncertain than usual, but you can expect inflation to continue to eat into your grocery and other budgets. Mortgage borrowers should expect rising rates through 2022. Five-year government bond rates, which influence mortgage rates, have risen from 0.3 percent at the start of 2021 to around 1.5 percent today. That’s a substantial hike, but still lower than historical ranges.

Borrowers should not expect variable rates to go any lower, and rates in general to be higher.

What this means for Whitehorse house prices is the million-dollar question.

All of the above could be thrown off track by a new variant, or any of the other megarisks hovering out there from trade wars to natural disasters. But you have to start somewhere with your annual budget, and budgeting is more important than ever this year. You don’t want to make it through COVID-19 only to have your personal balance sheet flattened by whatever is coming down the track next.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He is a Ma Murray award-winner for best columnist.