JANUARY 2017

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- Suresh Jaura
Publisher and Managing Editor

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ECONOMY: The Final Push

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By Peter G. Hall *   
Vice-President and Chief Economist Export Development Canada 

Scrum! This rugby configuration is an apt description of the world economy in the past four years. Powerful, opposing forces have been locked together in an epic struggle between growth and decline, with neither side prevailing. Initially puzzled and confused by the lack of resolution, onlookers are now despondent, and becoming resigned to the deadlock as a new, permanent state of affairs. Are they right, or can we expect a final push – either toward some economic cliff, or to a new era of growth?

Many in the US and Europe still fear the worst. Imminent fiscal cliffs in both zones are the top threat to a fragile global economy. The prospect of financial contagion is a close and highly-correlated second. Political risks abound, particularly in the Middle East and North Africa. Volatile food and energy prices have repeatedly frustrated episodes of budding growth. Slowing among the emerging market giants is an additional worry. And sustained low confidence means we all overreact to negative developments on these and other fronts. The economy’s opposing forces are strong.

The ranks of ‘Team Growth’ are thinning out. Europe is in a double-dip recession. Japan’s current growth burst is largely due to reconstruction funds, and won’t last. And the mighty BRIC economies could be shifting to the other side. The only remaining key player is the US – which popular sentiment would suggest is a faint hope, given its monumental public debt challenges.

Is popular sentiment correct? Consider the facts: Inflation-adjusted retail sales – a barometer for activity in 70 per cent of the US economy – are now rising by 8 per cent. US housing construction is currently up 35 per cent. For a leading indicator, that’s doubly impressive. Corporations are sitting on $5.7 trillion of cash or near-cash which they are just about to start spending. Why now? Because as we speak, US industrial capacity is within a hair of pre-recession limits. Parting with a fraction of this cash is sufficient to ignite an investment boom. Add it up, and it looks like an economy on the move.

Why is it not more obvious? Like any good rugby scrum, it’s often hard to tell what’s happening at ground level. Sighting the ball can be impossible – until one player grabs it and charges for the goal line. That player is the US economy, and it’s poised to make a dash. EDC’s Fall 2012 Global Export Forecast sees the US economy rising by 2.8 per cent in 2013, following 2.3 per cent growth this year. The good news is that other players will follow, and get a chance to carry the ball. World growth is projected to rise by 3.9 per cent next year, up from 3.4 per cent in 2012, with both industrialized and emerging markets showing a decent acceleration. The final push toward solid growth is underway.

Canada is poised to benefit. Our domestic economy is softening, but the US revival, sustained forays into fast-growing emerging markets and a slightly softer loonie will lift export growth from 4.6 per cent this year to 6.3 per cent in 2013. Resource industries will lead the charge, with forestry in front. Advanced technology and the auto sector will bring up the rear, but will still manage to expand, while low prices see the metals sector recede slightly. Across the country, growth will be higher in the East and West, but will be softer in the centre, weighed down by a weaker manufacturing sector.

The bottom line? Opposing forces are strong, but the world economy’s final growth push is on. Canada is close to the action, and well-positioned to participate. Exporters, get ready to run!

© EDC

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