As part of our complete range of services, Hogg, Shain & Sheck invited clients, friends and business leaders of the Greater Toronto Area to take part in a forward looking and perceptive economic seminar that explored what economist, Brian Beaulieu of ITR Economics, expects for 2014 and beyond. Here are some highlights from Brian’s presentation including some strategies and opportunities.
Canadian and US Recovery Indicators
Current economic indicators are pointing up and Brian believes that this will result in continued modest growth until the end of the first quarter of 2014. Gross Domestic Product (GDP) has increased over the prior year, signifying that the essentials for growth are still present and will continue to support an expanding economy. Liquidity is not an issue in the global economy as larger companies have significant cash reserves generating a lot of latent opportunity for employment and dismissing any chance of a credit crisis in the near future.
Job openings in the U.S. over the last few months in the private sector are down, however the overall employment rate is rising and will continue to grow; it’s at its highest level since 2009. In the U.S., at least 150,000 new jobs are being created each month signaling that the economy is continuing to grow, but any fallback resulting in lower job creation will signify that the economy is faltering.
The pace and value of bank lending has increased from the prior year. Interest rates will remain low in the foreseeable future, which means companies still have the opportunity to borrow but should only do so in the short-term and at locked-in rates.
Retail sales are currently rising at the rate of 3.3% in Canada and 2.8% in the U.S. For the economy to remain buoyant the Canadian percentage must be maintained at this level and U.S. sales not dip below 2.5%. Watch this trend carefully as this will be a major indicator of the overall economic outlook.
The Canadian dollar will trade below par to the U.S. dollar, in the range of 95 cents.
Residential property in the U.S. creates an opportunity for Canadians to earn income. The U.S. will have a far greater number of permanent renters than here in Canada which provides an incentive to purchase rental property in the U.S. The “so-called” Canadian housing bubble will not result in a drastic downturn in values as happened in the U.S. due to the recent restrictions put in place by the Federal government and the demand fuelled by the continuing immigration patterns in Canada.
The economic sleeper: Mexico
Businesses are overlooking Mexico owing to the negative publicity on violence. Demographically it is a great place in which to invest with its natural resource development combined with its younger population base. Family sizes are decreasing while education levels are increasing and Mexico is poised to fully participate in the North American market. With the correct strategy you can take advantage of Mexico’s expansion – Brian’s tip is to either sell into Mexico or benefit more directly by setting up a permanent establishment in the country.
Europe: East or West?
The future is in Eastern Europe. Europe has entered into a modest recovery phase in 2013 but structural concerns remain including the overarching problem with its dependency on Germany. Germany is running a surplus allowing it to finance Europe’s problems, but it has a negative dynamic in terms of its own demographic—it is reasonable to question how they will finance all of Europe in the medium-term when a large percentage of the population will be aged. Europe, like China and Russia have a much inverted age pyramid (many more older people than younger), making the economy unpredictable. Brian advises to invest into East Europe but to tread carefully.
Asia’s defining demographics
China will not overtake the United States as the world’s super power for one predominant reason: the U.S. has an abundance of youth. A growing population both generated internally and through immigration creates growth potential and business opportunities. China’s family size is shrinking with the one-child policy and education has not improved. India is struggling with growth due to inflation.
For ourselves and for our youth: 123 over ABC
We must relearn and reteach the language of math and science. Higher education institutes in America allow business leaders to teach for two years without a teaching certificate in a bid to renew the emphasis on math and science. According to Brian, fluency in three languages will be an advantage: Proper English, French and one of your own choice that makes sense within the markets that you are trying to penetrate.
Management objectives to consider
Brian believes we are in the late C phase. To prepare your company make sure to:
Set budget reduction goals by department
Avoid long-term purchase commitments late in the price cycle
Concentrate on cash and your balance sheet
De-emphasize commodity/services in anticipation of diminishing margins
Weed out inferior products /services (lose the losers)
Invest to grow the big picture
Invest in your staff and train staff in house
Trends you need to consider
The Forecast: Economy’s Timeline
Take away points
In the near term, avoid investing in bond funds; invest in specific bonds with short maturities (2 to 3 years) and metals for the long term
Borrow money from the banks now at a low interest rates before they trend up
Remember as interest rate increase, bond prices decrease
Do not buy gold in the next 12 months
Invest in U.S. properties and sell before 2029
The U.S. dollar will remain the world’s currency reserve but be aware of potential tax increases in the U.S. to offset their debt load
Prepare your company’s 2014 budget carefully. We will see a softening in the economy in the middle of the year ( 2nd and 3rd quarters)
Ensure you have the right talent on your workforce
2018/2019 will see a steep decline in our economy —similar to the one that took place in the early 80s
What markets should you invest in?
Water Distribution / Conservation
Act on strategies to improve market share and grow your customer base only when it aligns with the company’s long term goals. Plan according to market trends and better prepare your company to increase its probability for success.