In forecasting, the best laid plans of mice and men often go awry. Just as US growth seemed to be brightening, the political unrest in North Africa and the Middle East threatens to seriously dent America?s pace, as it?s now eating up two thirds of the benefit to consumers from the social security tax cut. Some models suggest Canada is a small net winner in a higher oil price outcome, but we doubt that holds for the case of major global supply shocks that
takes world growth down for the count. At this point, the potential outcomes are binary. Dominoes are clearly falling, but Libya could still end up being the first and last significant oil producer to tumble. If so, the Saudis and ample inventories could almost certainly fill in the gap. In that case, we might spend a couple of quarters with elevated but not fatal oil prices. As long as the world?s central banks don?t add to the downdraft with inappropriaterate hikes in response to a temporary jump in the CPI, recession risks will remain minimal.
