Canada's Future Growth Zones

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By Peter G Hall
Vice-President and Chief Economist Economic Development Canada

If the science of economics is truly dismal, then now must be its heyday. Six sub-standard post-recession years have birthed a glut of gloom. Few forecasters – in Canada or elsewhere – brave the high side, either run down by repeated retreats, or fearing the ‘heretic’ moniker. Now, there’s a close cluster around consensus, and a general acquiescence to ‘new-normal-nomics’.

It sure sells well in Canada. Cautious at the best of times, we’ve more to worry about now. We have debt-saddled consumers and an overbuilt housing sector. Exports, seen as the way forward, are now swallowing the commodity price plunge. Soft resource markets, many say, reinforce the view of a weak world, dimming export prospects. As such, analysts are questioning traditional pillars of growth and contemplating new ones.

While never a wrong approach, it may yield limited payback. What if the double-length global growth cycle that culminated in five-plus years of excess, setting up the Great Recession, has actually required all of the subsequent years to use up those excesses? That would not only explain for stagnation, but label it temporary. The pent-up demand evident in the U.S. and now more clearly in Europe strongly suggests that we could be on the verge of an ‘old normal’ growth spurt.

Perhaps that, together with a weaker Canadian dollar, is why exports of auto-sector, consumer product and aerospace exports are surging, among other key manufactures. And why European Union demand for Canada’s higher-valued exports is strong. And pent-up demand exists, then future growth beckons. Canadian manufacturing is proving that it is far from a bygone industry, a fact underlined by recent significant investments.

Emerging market hiccups have muddied the picture, but even so, most expect them to double the growth of the industrialized world. At current growth, emerging economies are adding tens of millions to the middle- and upper-class ranks annually in the largest markets, cohorts thirsty for more of the kinds of things – a broader range of higher- value goods, and increasingly, services – that we produce and export. A crystal clear example is the scorching emerging market demand for Canadian food products, which is only just beginning. And if developed-market momentum is on the rise, our prospects there will only brighten further.

Demands of these economies don’t stop at higher-value-added exports, though. Developing economies’ need for resources is undiminished, and as a result, demand for Canada’s primary products will continue well into the long-term future. Our supplies are even more attractive considering that geopolitics is and will be compromising vast quantities of global resources for some time to come. Canada’s resource industries are far from passé, whether or not emerging markets ‘come back’ quickly.

Thus far, it looks like our traditional strengths remain our greatest opportunities. Even so, success will require new approaches. Increasingly, labour constraints will necessitate more capital intensive production at home, and foreign-sourced production. Already a substantial economy beyond our borders, direct investments abroad will only rise in importance as time goes on. It will require increased risk appetite and the savvy to succeed in less familiar settings – but Canadians are already proving we have the moxy for this. It will also require us collectively realizing that this activity is not job-killing; it’s actually job-preserving.

Too good to be true? Maybe. Populism’s rise – most notable in the recent Brexit vote – presents the greatest existential threat to date to the benefits brought on by the current and future global reach of business. Frustration with the past cycle’s structural weaknesses and the current one’s sluggishness has prompted numerous backlashes against globalization and the institutions and enterprises that support it. Tragically, the movement seems to be gaining momentum, and among its greatest proponent-nations, at just the moment the economy is due for a rebound.

The bottom line? There’s a lot at stake. But in the mayhem, there’s more than a glimmer of hope for Canada. Our global footprint is extensive, our exports are growing, we’re diversifying globally, and our banking system is solid. We have the means to run into the global business void left by those who are backing off at precisely the wrong moment. And we can do all this by doing what we already do well, but on a wider front.

[Source: EDC]


Vol. 12 - No. 3


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