Economic growth in 2022, but less vigorous than in 2021

Economic Outlook 2022: Update on what’s to come from Ms. Joelle Noro, Senior Economist at Desjardins.

What will 2022 bring us economically? Forecasts are always a little risky in many things – natural disasters, military tensions, etc. – can change the course of events.

However, when studying long-term trends, a number of parameters can be set. This is exactly what we did in mid-January during an interview with Joel Noro, senior economist at Desjardins Group.

Inflation and interest rates

At the time of the interview, inflation was close to 5%, and generally speaking, in this context, central banks tend to raise interest rates to keep the economy from overheating. Usually, financial institutions themselves monitor these rate increases.

As we speak, three quarter-point interest rate hikes are expected in 2022, Ms Noro said, she said of the decisions planned by the Bank of Canada.

She speaks of a slow and gradual increase, with the first increase occurring at the very beginning of the second quarter of 2022.

Joel Noro, Senior Economist at Mouvement Desjardins. © Desjardin Group

However, galloping inflation could change the situation.

“The mechanism for raising interest rates is, among other things, to calm inflation and slow down the economy somewhat. The data over the next few months may see this increase pushed or delayed, but for now our forecast is that we will have three increases this year,” the economist told us.

Inflation is also an increase in the cost of raw materials and materials. “In the industrial sector and heavy industry, this effect is still not negligible,” emphasizes Ms. Noro.

His colleague Marc-Antoine Dumont, also an economist at Desjardins, is particularly interested in metals prices, which appear to be on a downward trend after a very strong rise in 2021. Good or bad news? It depends if you are buying metals for your production or you are a miner who sells ore.

“We are in a situation where the supply is quite limited, so the market is very volatile. But in general, what we expect is a calm decrease in demand, while supply is correcting,” says Mr. Dumont.

Inflation will also hit manufacturing and heavy industry workers, putting pressure on wages. According to Ms. Noro, entrepreneurs will have to cope tough, especially since not in all cases these increases can be passed on to customers.

“This requires a reorganization in some respects, perhaps in production or in customer relations, but it is clear that the position is delicate and will require tact from managers in the industrial sector,” she said.

Oil and Canadian dollar

The price of oil affects the industry, which uses it for heating and for transporting incoming and outgoing goods.

According to expert Desjardins, the price of a barrel of oil has reached its peak. “It is clear that we are not going to go up to $50 a barrel, but most of the increase has already paid off,” she said.

She recalls that in 2021 the WTI market was around $68, so 2022 is starting off at a pretty high $77-$78 at the time of the interview. However, this should stabilize and instead she is forecasting a barrel of WTI around $73 in 2022 thanks to increased supply.

Since Canada is an oil-producing country, its currency usually follows – up or down – the price of black gold. What should manufacturers who sell or buy in the United States expect?

Ms Noro first points out that 2021 ended with the Canadian dollar worth roughly 77.5 US cents. “By the end of 2022, we will be closer to 80 cents,” she said, adding, however, that if the Bank of Canada raises the US Federal Reserve, which could make our Canadian dollar more attractive – at least temporarily – to investors. However, he maintains his predictions for the Canadian dollar around 80 US cents.

“It remains a forecast, and it can be tainted by many dangers, as we have seen over the past two years when we work with old tools, but with really new situations,” the economist clarifies.

Invest in automation when interest rates might rise? Desjardins senior economist advises asking the question: “Can we afford to wait? »

Growth and investment in automation

After 2021, when Quebec’s growth (about 6.5%) was higher than expected by many analysts, Ms Noro believes that growth will continue in 2022, although less vigorous than last year.

“Because the catch-up effect will also be achieved in Quebec, where we have reached the level of GDP that prevailed before the pandemic in February 2020, from March 2021,” she recalls.

This expected slight slowdown will not be enough to offset Quebec’s overall labor shortage. It will take a good decade for young people in training and newcomers to the country to become fully productive, Ms Noro estimates.

But if interest rates continue to rise, is it really time to invest in robotization and/or automation of industrial and manufacturing activities?

“I don’t recommend it. But I do know one thing, namely that if we look at the problem of labor shortage, then it will not be solved in the short term,” explains Desjardins, who believes that it is important to weigh everything first “ pros and cons cons of such investments.

“The calculation should also be based on the principle “can we afford to wait?” ”, Ms. Noro assesses.

household expenses

People saved a lot during the first wave of the pandemic, thanks to the uncertainty that reigned. Will they loosen budgetary fetters in 2022 and thereby force factories to work harder?

“People still have money. The savings rate is now higher than it was before the pandemic,” our guest first notes.

“What we feel, at least for Quebec, is that there will still be a significant level of spending, but less strong in terms of goods than it was because people went looking for a lot of things to live at home. Be it renovations, leisure items, etc. »

“We think the growth will be felt a little faster in the service sector, which has been open/closed/open/closed over the past year,” Ms Noro says of sectors such as catering or accommodation.

However, man is sometimes an unpredictable being. “It’s not clear to what extent people will be scalded during the pandemic and want to keep a bigger airbag than they had before the pandemic,” she says.

For industries dependent on construction and real estate, senior economist Desjardins predicts a downturn in 2022. Requirement. And the cost of homes now means we may have fewer people rushing to buy property, new or used,” she said, adding that the decline could nevertheless be beneficial in some respects.

“Perhaps this will allow us to find a more suitable production rhythm for life. Because it was still very intense. Surely there are companies that were forced to refuse contracts or postpone them,” she says.

Supply chains

Another big unknown in 2022 is whether global supply chains will manage to stabilize after months of disruptions, including ships stuck at sea due to a lack of staff and equipment to receive goods in ports. In this Ms. Noro looks quite optimistic.

“At the reception level, things improved a lot because we formally identified the problems there,” she says, citing the example of the Port of Los Angeles, which has adjusted its work so that it works 24 hours a day, 7 days a week.

According to her, cargo transportation has also adapted to the new conditions. “We are working to eliminate these bottlenecks. »

“We are not completely immune to riots, except that we are becoming more adept at dealing with them. We have learned,” the economist sums up.

Ms. Noro believes that we must rely on the fact that people will continue to communicate with each other and adapt. “There is no one who would benefit from such big problems as those we had in the past,” she says, adding that, despite the exhaustion of patience, “we can no longer afford to completely shut down economies or parts of the economy. »

“Eventually, we will exit Omicron,” concludes our guest, who foresees the gradual lifting of medical restrictions, which could contribute to a new economic breath.

Eric Berard

Consult the latest issue of MCI magazine.


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