Prospects for the Northern economy by 2022

November 29, 2012

The northern economy is set to prosper over the next decade - a higher growth region within the low growth western world. Here’s why.

The World Bank data shows the western world, aka the US, Japan and Europe, slipping rather dramatically in terms of world share of GDP. The United States fell from 32% to 22% in the period 2001 to 2011 (a 32% decline). Japan dropped 35%, Britain 24%. Each of these nations has pursued a policy of aggressive monetary easing commonly called money-printing. The US has shunned making hard budget decisions and has let its federal budget deficit run at $1.3 Tr for the last 4 years. Japan has similarly allowed debt to grow to very high levels. The UK has adopted some austerity measures, yet struggles to near budget balance.

Extrapolating the World Bank data for ten years into the future. The data suggests:

• the US share of world GDP will decline to 15%. China’s share would grow to 25%.
• Japan’s economy will fall to 5th in the world, behind Brazil and Russia.
• Britain’s economy will fall to 14th in the world, behind its former colony Canada.

The northern areas of North America contain resources that are attractive to resource consumers, particularly in Asia. In the next ten years:

• Alaska. Off-shore oil and LNG export projects hold promise, but development would take more than a decade. The number of mining industry jobs is expected to increase by 19.3 percent between now and 2020 according to the October issue of Alaska Economic Trends. Mining is expected to be the second fastest growing sector as long as mineral prices remain steady. Several mining operations are expanding now or expect to expand including Usibelli Coal Mine, the Pogo Mine in the interior, the Red Dog Mine in Northwest Alaska and Green’s Creek in southeast Alaska. The report says that the Livengood Project or the Donlin Creek project may produce additional employment, assuming their permitting and construction can be completed. 
• Yukon. Has 5 potential mines slated for development within the decade, including two small gold mines, two medium sized base metal mines and one tungsten mine. Together these developments would more than double the 1,000 people directly employed in the mining sector.
• NWT. This territory had the lowest rate of economic growth in Canada in 2011. But that is about to change. It has 4 mines expected to be developed in the near term. The giant Ekati diamond mine is nearing the end of its mine life in 2018, followed by Diavik in 2022. The new mines should counter the closure of the two large diamond mines to some extent. Oil and gas activity in the Norman Wells and Ft.Liard areas have potential for development.
• Nunavut. Nunavut is on the verge of a mining boom due to 8 projects potentially being built.  The large Mary River iron ore development will be a $4-6 B project that will employ more than 700 people. The Back River project will employ 900 people in a large gold mine—the port and road infrastructure needs to be built.

Commentary

The policy makers in the United States, Japan and Europe need to wake up and smell the coffee. You cannot ‘print’ your way to prosperity. The process of capital formation and investment requires savings to be funneled into investment. In northern regions, there are numerous projects that attract such investment which in turn leads to higher GDP. That is why the northern regions will do well over the next decade.

Sources

• a)http://www.zerohedge.com/news/2012-11-28/cost-kidding-yourself



• b)http://www.alaskaminers.org/



• c)Guy Quenneville, "The next 20", Up Here Business, November 2012, p.43.