A cup of heavy oil produced at the Statoil oil sands operation near Conklin, Alta., November 3, 2011. Prices for raw materials have risen to levels not seen since the early 1900s. Volatility is also greater than at any time since the oil shock of the 1970s.
BOOM IN COMMODITIES
For most of the 20th century, cheap resources played a major part in global economic growth.
Those days may be over.
During the past eight years, persistently high and volatile commodity prices have wiped out the steady decline of the previous century, according to data compiled by the McKinsey Global Institute.
Prices for raw materials have risen to levels not seen since the early 1900s. Volatility is also greater than at any time since the oil shock of the 1970s, because prices for various commodities are increasingly moving in lockstep.
"Our analysis suggests that [prices]will remain high and volatile for at least the next 20 years if current trends hold – barring a major macroeconomic shock – as global markets oscillate in response to surging global demand and inelastic supplies," says a recent report in McKinsey Quarterly.
Fuelling this demand will be the increased need for energy, food, metals and water as 3-billion new middle-class consumers emerge over the next two decades. Consider that the global car fleet is expected to almost double to 1.7-billion by 2030; caloric intake per person in India is forecast to rise by 20 per cent over the next 20 years; and demand for urban infrastructure will soar, with China predicted to add every year total floor space that is 2.5 times the entire residential and commercial square footage of Chicago.
PAYCHEQUES SHOW CONFLICTING TRENDS
After a decade of gains, Canadian public sector earnings are slowing down.
Private-sector advances, on the other hand, are holding their own.
Governments faced with the harsh economic realities of the times are trying to get their fiscal houses in order and that's having an impact on public-sector wages, says Aron Gampel of the Bank of Nova Scotia. Infrastructure investments are being wound down and spending restraint is the order of the day.
Average weekly public sector earnings increases moderated this year to 2.5 per cent, from last year's pace of over 3 per cent, he says.
"This slowing trend will more than likely persist as governments wrestle with the need to put their budgetary dynamics on a more solid footing in an increasingly uncertain outlook," he suggests. But don't expect a return to the severe wage compressions of the 1990s, when relatively larger budget imbalances had to be tackled.
In the private sector, wages have advanced so far this year by 2.7 per cent, just ahead of last year's 2.4 per cent pace.
The upward trend in private-sector earnings should persist, but it will be moderate given the Canadian economy's shift to a slower growth trajectory over the next year, says Mr. Gampel.
PROVINCES STAY ON TRACK
Strong global headwinds have failed to throw the Canadian provinces off course.
"While the European sovereign-debt and banking crises have the potential to slow growth materially, to date the Canadian provinces have weathered these headwinds," says Paul Ferley of RBC.
He notes the latest data indicate that economic growth is in good shape across Canada, although the performance looks uneven.
Saskatchewan, Newfoundland and Labrador, Manitoba and Alberta are doing exceptionally well, while New Brunswick, Nova Scotia and Quebec are underperforming, he writes.
For 2012, he anticipates that the European crisis will ease somewhat and that the provinces will benefit from a moderately stronger U.S. economy.
Growth rates for Ontario, Quebec, Manitoba and most Atlantic provinces should be faster than in 2011.
The biggest factor will be the natural resources sector, with the resource-heavy provinces benefiting the most. Saskatchewan and Alberta will stay at the head of the pack in 2012, he argues.
Newfoundland is in a transition phase that will see its growth rate moderate but stay at a healthy level, he predicts.
An earlier version of this story incorrectly attributed the "commodity prices since 1990" chart to Scotia Economics.