There are known unknowns, and there are unknown unknowns, Donald Rumsfeld once famously (and confusingly) said.
If he'd been clearer about it, he might have said something like, In any given situation there are unpredictable elements we can pinpoint, and there are other elements that will be a surprise because there's no way to foresee them.
Rumsfeld was talking about the invasion of Iraq, but the logic applies to economics too. Canada heads into 2014 with a large number of known unknowns hanging over it — everything from pipeline decisions (both the U.S.'s and Canada's) to interest rates to half a million public servants negotiating salaries with governments that aren't in the giving mood.
Here are 12 of the known unknowns Canada's economy faces. As for the unknown unknowns, well, we don't know about those.
THE LOONIE'S SLIDE
Cross-border shoppers were among the biggest losers of the loonie’s slide in 2013, which saw the currency fall from above parity with the U.S. dollar in the early months of the year to trading at around 93 cents U.S. in recent weeks.
But what’s bad news for shoppers is good news for exporters, who will likely reap the rewards of their products being less expensive on the global market. There’s already evidence of a bounce-back in Canada’s moribund manufacturing sector.
But the loonie’s ride isn’t over, and market analysts are predicting more of a slide. Uncertainty isn’t good for business, and the markets will be watching the loonie’s progress closely in 2014.
THE HOUSING MARKET
Is Canada’s housing stable and set for growth, or about to crash and burn?
No one can say for sure, but with consumer debt stretched to the limit and economists naming Canada as one of (if not the) most overpriced housing markets in the world, everyone from banks to brokers to homeowners and homebuyers will be watching Canada’s unpredictable residential real estate market in 2014.
Adding to the uncertainty are questions surrounding the accuracy of Canada’s housing data. Some market observers say sales numbers are being inflated, and others are complaining about a lack of quality data about the extent of foreign investment in residential real estate.
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INTEREST RATES
Closely related to the issue of house prices is the issue of interest rates. A year ago, then-Bank of Canada Governor Mark Carney was making noises about Canadians needing to get a hold of their debt because interest rates could be rising soon.
The new guy at the BoC, Stephen Poloz, has been more dovish, suggesting any interest rate hikes are still some way down the road. That’s a relief to the housing industry, which fears what higher interest rates could mean for Canadians’ ability to afford today’s house prices if monthly payments spike.
But Poloz’s reasons for delaying interest rate hikes should be cause for concern: He sees a risk of deflation in Canada’s economy, a phenomenon that could be much worse than the more common inflation problem. (Would you buy anything today if you knew it would be cheaper tomorrow?) The lack of inflation in Canada is a sign there is still slack in the economy, and we haven’t fully recovered from the last brutal recession.
THE FUTURE OF UNIONS
A recent report from the Conference Board of Canada warns that, after decades of a shrinking union presence in Canada, 2014 could be a year of labour unrest.
Some half a million public sector workers are going to be involved in collective bargaining next year, and the unions are in no mood to be friendly to the Harper government. They say changes to labour laws in the government’s latest budget will make work conditions more hazardous for federal employees, and effectively undermine the right to bargain collectively.
Eighteen public sector labour groups are launching a lawsuit against the federal government over the changes, promising fireworks in 2014 at both the negotiating table and in the courts.
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KEYSTONE XL
The Keystone XL pipeline from Alberta to Texas was supposed to be just another (albeit highly lucrative) piece of energy infrastructure, until it became environmentalists’ acid test for the Obama administration, to see if the U.S. president is serious about addressing climate change.
Environmentalists and the industry are eagerly awaiting the final report from the State Department on the pipeline, a prelude to the Obama administration’s long-awaited, long-delayed decision, now expected to take place in 2014.
Whichever way the decision goes, it will have a noticeable impact on Canada. A “yes” would almost guarantee massive expansion in the oilsands in the coming years. A “no” likely wouldn’t stop expansion, but would slow it down as oil companies looks for pipeline alternatives (rail, anyone?). And it would also throw a wrench into Canada-U.S. relations the likes of which haven’t been seen in many a year.
NORTHERN GATEWAY
Enbridge’s Northern Gateway, which would move oil from Alberta to the Pacific coast at Kitimat, B.C., for export to Asia, got a big boost this month when the joint review panel looking into it recommended approval.
But that doesn’t mean the fight is over. While public opposition to the project has softened somewhat, especially in B.C., environmental and aboriginal groups are sticking to their guns and arguing the panel’s decision ignores the risk of hundreds of supertankers moving every year through the islands off the B.C. coast.
Ottawa’s final decision on the pipeline — which Harper’s Tories have largely backed — is expected to come in 2014, and whichever way the decision goes, it will help shape the future of Canada’s energy industry.
TELECOM / CRTC DECISIONS
Canada’s telecom watchdog made some notable regulatory changes in 2013, including the introduction of a code of conduct for wireless companies, and, most recently, decreeing that cable and satellite TV providers must offer Sun News, and all other news networks, to their subscribers.
But there’s more coming in 2014. Wireless carriers could find themselves under greater regulation as the CRTC has launched an investigation into possibly unfair competitive practices by the large companies against the small wireless players.
And the CRTC is also planning what could be fundamental changes to Canadian TV: It has launched a review of the entirety of Canada’s regulatory framework, and everything is up for grabs, from Canadian content rules to channel bundling to whether and how Netflix should be regulated. What the CRTC decides could shake up the industry, and the way we watch the tube.
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'CANADA'S NEXT OILSANDS'
Ontario’s Ring of Fire — the subject of an extensive series of articles by HuffPost Canada — has been dubbed “Canada’s next oilsands.” Mining companies are lining up to get a piece of the 5,000-kilometre crescent of land in northern Ontario, said to contain $60 billion of gold, copper, nickel, chromium and other metals.
But sliding resource prices and uncertainty over First Nations’ role in the project are holding things up. Cliffs Natural Resources, the company set to be the largest player in the Ring of Fire, this fall suspended development of the project, citing uncertain timelines and a risky business environment. Ontario’s government says it’s committed to the project, but whether or not it comes to fruition anytime soon is an open question.
TPP
Critics call it a “corporate giveaway” that will undermine the sovereignty of nations, but the Trans-Pacific Partnership could soon be one of the world’s largest free trade blocks, comprising 800 million people and 38 per cent of the world’s GDP. The most controversial elements of the proposed deal involve intellectual property issues: Opponents say the deal will increase government intrusion into people’s activities online, and extend patents on pharmaceuticals.
The 12 Pacific Rim countries negotiating the deal — which includes the U.S., Canada and Japan, but not China — are reportedly near a deal, so 2014 may be the year we find out exactly what Canada is signing up for.
RETIREMENT PENSIONS
The question of whether or not Canada needs to reform its retirement pension system jumped into the political debate this year, culminating in a rift between the 10 provinces — which see a need for strengthening the Canada Pension Plan as the population ages — and the federal government, which now says no change is needed, and has indefinitely shelved any plans reforming the CPP.
Ontario and some other provinces plan on going it alone on retirement pension reform in 2014, with Canada’s largest province looking at Pooled Registered Pension Plans (PRPPs) as a possible model going forward.
But with the federal government on the sidelines, the nationwide Canada Pension Plan will likely see no reforms in the near future.
THE JOB MARKET
Canada’s unemployment rate slid below 7 per cent for the first time in years in 2013, but digging deeper into the data, the picture isn’t all positive.
Manufacturing jobs are disappearing at a rapid clip, and economists say export growth isn’t strong enough to turn that around. Meanwhile, many of the jobs being created in Canada are of poorer quality than the ones that are disappearing. Low-wage retail jobs are seeing strong growth, while sources of higher-income jobs are seeing stagnation.
So which way the job market is headed is almost a matter of opinion at this point, and economists will be watching to see whether this plays out as a good news story, or a bad one.