Economy: Staying the Course

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By Peter G. Hall, Vice-President and Chief Economist EDC *

It's a hot summer here in Ottawa, and the temptation is to forget all else and enjoy the good times. But that's a hard sell in today's economy. Is there a remedy? Few look to economic forecasts for solace - most are spouting the same doleful message. Is EDC's Summer 2012 Global Export Forecast any different? Here are a few reasons why this outlook may help you enjoy your summer break. Headline numbers in the EDC forecast appear ho-hum.

World growth is expected to ring in at 3.3 per cent this year, rising to 3.9 per cent in 2013. But that just gets us back to the less-than-stellar 2011 pace, hardly great news. Canada's forecast looks equally humdrum - 2 per cent this year, rising marginally to 2.2 per cent growth in 2013. Pan across the rest of the forecast, and the numbers look depressingly similar to the news stories conditioning all to expect protracted sluggish global growth.

Are hopes of a US recovery fading? Our outlook suggests so, as it's barely above consensus. But the story behind the numbers changes the picture significantly. US housing markets - a key leading indicator - are still on the rise, the auto sector is recovering nicely, consumers are increasing spending sustainably, and to keep up, US factories have used up almost all of their spare capacity. This last fact suggests that US corporations are primed to unleash torrents of their vast cash stash into the economy at a moment's notice. So, why the bland headline numbers? Significant government cutbacks are masking the recovery-style private sector growth that is estimated to reach 4.5-5 per cent in 2013. While this story is embedded in most forecasts, few are pointing out this dynamic.

Sure, there are key threats to this story. Breakdown of European resolve to conquer its sovereign debt problems would have a disastrous impact on the outlook. Ongoing weakness and turbulence in financial markets and geopolitics are further threats to growth. Collectively, these issues are contributing to an unusually prolonged state of global pessimism. But what is more amazing is that this is the context in which the US economy is actually experiencing its underlying revival.

Emerging markets - touted only six months ago as global growth engines - are slowing. This isn't helping confidence, but it is only temporary. A better mix of policy measures together with rising US growth should help the key emerging markets get back on their feet by next year.

Canada's mediocre numbers seem to fly in the face of the upbeat US story. Again, it's the story behind the headline numbers that matters. Canada's over-indebted consumers and oversold housing markets together with government cutbacks suggest weak near-term domestic demand. In contrast, the US revival and strong gains in emerging markets is expected to lift export growth to 7.2 per cent this year and 6.6 per cent in 2013.

Global sales will be powered by double-digit gains in forestry, industrial machinery and equipment and fertilizers. The auto sector will remain strong, while softer commodity prices dampen otherwise impressive oil and gas and base metal sales. Most other sectors will see decent growth in 2013.

The bottom line? Although economic conditions appear rocky, there is still a strong underlying growth trend in the US that is taking us closer to true recovery. For now, staying the course is critical.

The views expressed here are those of the author, and not necessarily of Export Development Canada.



Vol. 12 - No. 3


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