Surging oil prices will spur a resurgence in manufacturing jobs, says Rubin
MONTREAL - A surge in oil prices over the next year will help to restore North American manufacturing jobs as higher transportation costs raise domestic production, says a well-known bank economist. Miami
“In autos there is some long-term damage, but in manufacturing in general, much of what we have lost … is coming back because it’s not just about wages anymore,” Jeff Rubin, chief economist at CIBC World Markets, said in an interview Tuesday.
The US$700-billion rescue of Wall Street by the U.S. government will help ease the global credit crunch, but will create bigger American deficits and produce rising inflation and interest rates on both sides of the border, he said.
“We’re going to get jobs returning that we thought were gone forever but they’re also going to bring back inflation which we also thought was gone forever.”
However Rubin’s assessment isn’t shared by two union economists.
A soaring loonie that will result from a sustained rise in energy costs will have a much more significant dampening impact on the manufacturing sector, said the chief economists of the Canadian Labour Congress and the Canadian Auto Workers Union.
“To pretend that we can have both a very strong energy sector and a strong manufacturing sector I think is a delusion,” said Andrew Jackson of the CLC.
Jim Stanford of the CAW said he’s skeptical of Rubin’s hypothesis because the cost increase associated even with $200 oil wouldn’t dramatically alter today’s trade balances.
“From the Canadian perspective, the negative impact from high oil prices on our exchange rate vastly outweighs any benefit of high oil prices in limited globalization.”
But Rubin said rising shipping costs will be dramatic. The cost of sending a 40-foot container from China to New York will increase five-fold to $15,000 if oil reaches $200 per barrel. And higher oil will raise the cost of energy and food.
Speaking at an investors conference put on by CIBC, Rubin said that while the United States and rest of the OECD are likely to see growth grind to a halt by year-end, global growth should recover in 2009.
In Canada, real GDP growth will be 1.3 per cent before rising to three per cent.
Specifically, Rubin predicted:
-Oil will average a record-high US$150 per barrel over the second half of 2009 as the economic recovery rekindles demand growth, and rise to US$200 in 2010.
-U.S. inflation will surpass six per cent in the last half of 2009, hitting the highest level since 1990. Canadian inflation will be 3.3 per cent.
-The U.S. Federal Reserve Board will hike interest rates by two percentage points by the end of next year “in what is likely to be a protracted and painful adjustment in real interest rates.”
For Canada, the 2009 picture will be brighter, with real growth of about three per cent and a jobless rate that should level off at about 6.5 per cent. The Bank of Canada will likely only raise rates by one percentage point, according to Rubin.
Earlier, the chief executives of three big banks said Canada’s banking sector remain strong and well positioned to weather the storm that has engulfed the United States.
CIBC president and chief executive Gerry McCaughey said developments in the United States are a reminder of the challenges banks face.
“At CIBC we’ve taken significant steps over the past year to position for this environment by shifting the focus of our operating businesses, and particularly World Markets,” he told the bank’s two-day investor conference.
CIBC, the hardest hit Canadian bank by the U.S. financial mess, has reduced its exposure to the United States through the sale of its investment banking business and exiting leveraged financial activities in London.
National Bank (TSX:NA) chief executive Louis Vachon said he expects the Canadian economy will slow but avoid a recession as the United States endures a protracted shrinkage.
“All the major banks and all of our competitors in Canada and Quebec are in good position and that’s why I feel that the competition will remain fierce in personal and commercial banking.”
Laurentian Bank (TSX:LB) chief executive Rejean Robitaille said his institution will post record 2009 results by focusing on its strength as a local bank that is the third-largest in Quebec.