Changes ahead for 2014
There are a number of factors that will frame the coming year in Canadian business. Many of the most influential ones are not only non-traditional, they’re exceptionally hard to predict.
The outlook for economic growth may be a perennially classic measure of performance, but in 2014 it will be directly affected -- and will directly affect -- a number of other issues.
The United States is expected to continue on the path to recovery, with overall growth for the new year clocking in at 2.7 per cent, nicely ahead of its 1.8 per cent rate in 2013. A stable housing market, improved income and no significant increases in taxes or interest rates are forecast to spark a nice rally in consumer spending.
While household debt will continue to suppress Canada’s growth to about 2.3 per cent (slightly ahead of the less than two per cent growth of the past two years), improved U.S. fortunes will provide a bit of a boost -- as is typically the case.
The lack of clarity around the rules for foreign investment in Canada (particularly in the natural resources sector) will limit the inflow of capital required to build new production capacity. In the year since Ottawa introduced its new foreign direct investment code, for example, investment in the oil patch fell to $2.3 billion in 2013 from almost $30 billion a year earlier.
This time around, however, the usual uplift from energy exports -- which account for almost a quarter of all Canadian exports -- is likely to be significantly muted. That’s because of severely constrained market access related to pipeline congestion and the failure of the White House to approve the much-lobbied Keystone XL pipeline between northern Alberta and the U.S. Gulf Coast.
There’s also the abrupt new reality that the U.S. is moving rapidly -- even more rapidly than it expected -- toward energy self-sufficiency. New discoveries and new technology have allowed American oil and gas companies to economically exploit vast reserve potential. At the same time, conservation initiatives are also taking some of the edge off the demand for fossil fuels.
As a net resource exporter, that has put considerable pressure on Canada to quickly develop new, global markets for the oil and gas it once shipped exclusively to the U.S. But several things must happen in 2014 for that shift to take place.
First, the initial approval of the Northern Gateway pipeline by the National Energy Board in mid-December has to be approved in federal Cabinet. The pipeline proposed by Enbridge Inc. of Calgary would run from northern Alberta to the west coast, allowing Canada access to high-growth markets in Asia -- specifically China.
But two other things have to happen before ground is broken on the $6.5-billion project. First, Enbridge has to ensure that the 209 conditions for NEB approval still make the pipeline economical to build. Second, a deal must be negotiated with various First Nations peoples to allow the pipeline to pass over land owned by Indian bands in both Alberta and B.C.
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