A Break with the Summer Break Blues?
By Peter G. Hall *
Vice-President and Chief Economist Export Development Canada
There’s a sour seasonality that has become entrenched in recent global economics. In the past few years, summer has become a disarmingly punctual momentum-killer of global production. Perhaps the most critical question in EDC’s Summer 2013 Global Export Forecast is whether we are in for yet another summer drubbing, or whether this is the year we break with that sorry tradition.
What makes it difficult to accept the new pattern as a trend is the wide variety of unpredictable events that caused it. Full-blown crisis hit the world economy in the summer of 2008. Stimulus made the following year an exception, but the end of the stimulus growth-surge killed growth in the summer of 2010. Knock-on effects of the Arab Spring and a shocking series of natural disasters quashed a decent surge of momentum in the summer of 2011. And last year it was the unexpected collapse of the Greek government and immediate fears of a widespread, debilitating domino effect that again undermined early-year momentum in the summer months. Will this summer be any different?
A glance at worrisome developments might elicit a well-practiced summer sigh. Mass protests are currently underway in Brazil and Turkey, conflict is intensifying in Syria, and the toppling of the Morsi government in Egypt has further unsettled the Middle East and prompted a spike in oil prices. To add to the uncertainty, the mere mention of an exit plan from quantitative easing has roiled global stock markets, depreciated a wide array of currencies, prompted a spike in bond rates and weakened key commodity prices. Agreed, it’s a different set of issues, but it’s so timely that it looks like an evil spell.
Before we get too resigned to a repeat, there is a significant, albeit less newsworthy, upside. Notice the perceptible increase in momentum that is thus far undeterred by recent events. Growth in private sector activity is most obviously increasing in the US, but both Europe and Japan have seen growth estimations increase in recent weeks in response to policy measures, but also to key growth fundamentals. And at long last, confidence is rising. It is up in 6 of the past 8 months in Europe. Japan’s Tankan Index is at its highest level since early 2008, and the same goes for US consumers, who, in the last two months, have convincingly broken out of their protracted recessionary pessimism.
It was a growth-and-confidence conundrum that kept the post-Depression economy from getting back on its feet again. As such, it is quite significant to see a simultaneous resurgence of these dual factors on a broad regional basis that seems to be occurring ostensibly on its own, without the aid of a new, flashy set of innovative policy measures. At this moment, it has the appearance of a homemade antidote to the event-related summer slowdowns that have become almost systemic.
EDC’s summer forecast believes that current momentum will continue. In spite of some early-year softness, global growth is generally expected to remain resilient over the summer months and into the fall, averaging 3.3 per cent this year and rising to 4.1 per cent in 2014. Developed markets will see greater growth improvement, rising from 1.4 per cent in 2013 to 2.3 per cent next year, although emerging markets will still crank out superior overall performance at 5.1 and 5.8 per cent in the next two years, respectively. As such, Canadian exports are forecast to rise 7.4 per cent in 2013. Lower commodity prices will weigh on growth next year, with the forecast pegged at 4.7 per cent.
The bottom line? Time will tell whether this summer’s negative shocks will again send the economy scurrying for cover. This time around, the world economy seems to be mounting its most credible assault on the doldrums since 2009. It’s a critical moment, one that has been a long time coming.