Winter is coming for the North American economy: Don Pittis

In thesword-and-dragon fantasy Game of Thrones thathas captured a huge following of readers and television viewers,characters periodically share the ominous warning, "Winter is coming."

As oil plunges to new lows, as General Motors announces plant closures and job cuts, as the U.S.-China trade warthreatens global commerce, as interest rates rise, asCanadian house prices teeterand climate changemenaces the world, the North American economy faces a similar feeling of impending doom.

Later this week Canadawith its own actual winter here or on the way will get a reading on just how gloomy we should bewhen Statistics Canada releases its latest gross domestic product numbers.

Preparing for a gloomier future

In George R.R. Martin's books and TV series you might think that with winter so near everyone would be working together, hunkering down, storing food and fuel and getting prepared for that ominous future. But no.

Instead, the characters are just too busy honing the skills that apparently keep thatpseudo-medieval society hopping, namely murdering your nearest neighbours and erstwhile alliesand stealing their stuff.

Just as lifeonly imperfectly imitates art, in North America, at least,mostof ushave not yet got to the murdering and stealing stage.

And while everyone from the OECDto representatives of the Alberta oil sector warn of future risks, for now the North American economy seems strong.Some arewringing their hands, but most of us are just too busy getting the job done to prepare for a gloomierfuture.

"I think there is a fair bit of hand-wringing out there," says Mike Moffatt, an economist at Western University's IveySchool of Business. "I think we are in a time of heightened political risk, between Trump tariffs, Brexit, Trump's kind of going-to-war with China."

While everyone tries to imagine solutions and looks for someone to blame, market signals, including a made-in-Canada price that some say is heading for $10 USa barrel, tell a story of an enormous Canadian industry that a pipeline may notsave and that output controls will do nothing to correct.

Global oil demand continues to grow but at any moment the frightening impact of climate change could well alter that.

OPEC's nightmare

But quite apart from environmental worries, for Canadian crude, expensive to produce and transport,there is a muchgreater medium-term threat expected to strike well before a pipeline could possiblyarrive. That threat isoutlined in a report byBloomberg's chief energy correspondent Javier Blaswith the headlineTexas Is About to Create OPEC's Worst Nightmare.

If as the story suggests, the Permian Basin is about to challenge the Saudis with vast new output oflight sweet crudethat can be pumped and sent to the Gulf Coastat a world price of $30 USa barrel, then no wonder investors are wary of Alberta bitumenmined 4,000 kilometres from Gulf refineries.

When OECDchief economist Laurence Boone gave her list of risks for the global economy last week, oil prices were just one of many.

"There's not one risk that worries us, it's the accumulation of risk," said Boone in her presentation with the rich-world think-tank's secretary general, Angel Gurria. "Trade, the impact of higher U.S. interest rates on emerging market economies, China's imbalances, oil prices, inflated asset prices, politics."

And risks come in groups, she says.

But with that list of apprehensions, neither Boone, nor Canada's Finance Minister Bill Morneau, nor Bank of Canada governor Stephen Polozseems worried about an economic collapse in the new year.

Bucking the trend

In fact, according to the OECDoutlook, while economic growth has peaked in the world as a whole, Canada's economy is bucking the trendand will seefaster growth next year, with GDP in 2019 rising2.2per cent following an expected 2.1 per cent growth rate in 2018.

One of the contributors? Legal cannabis, which on its own will boost the economy by two-tenths of one per cent.

As Moffatt reminded me, Canada's property market is in gentle retreat and, while the U.S. expects slightly slower growth next year as Canada's rises, the economyshouldremain robust.

It is after that that the OECDsays countries must be prepared to step in to sustain their economies with new fiscal spending. In other words, they should not spend now but must prepare for winter.

According to Sonya Scott, a professor at Toronto's York University who writes about economic history,GDP has failedto capture the majority of what Canadians have done to make the country stronger.

"When we look at things like GDP, it does tell us a story, but it doesn't tell usabout the sum total of economic activity, it doesn't necessarily tell us about well-being," says Scott.

And while giving tax money to companies may be one way to help keep them investing in Canada, she says,a more powerful way may be to spend that money creatinga highly skilled workforce that will make corporations come here.

As the OECD'sGurriasaid last week, skills are thecurrency of the 21stcentury.

Follow Don on Twitter @don_pittis