Economist optimistic about global situation
Export Development Canada’s vice-president and chief economist delivered an optimistic outlook for the global economy on Wednesday.
Speaking in Red Deer at an event organized by Central Alberta: Access Prosperity and the Red Deer Chamber of Commerce, Peter Hall described how the world is entering a new growth cycle that should create trade opportunities for Canada.
When the recession hit in 2008, he said, it ended a long growth cycle that dated back to the early 1990s. Years of excessive consumption and production came to a sudden halt, as the biggest recession since the Great Depression gripped the world.
Some feared the resulting economic pain was becoming chronic, but Hall offered four reasons to believe otherwise.
For one thing, he said, leading indicators like housing starts and sales of durable goods are rising. The Organization for Economic Co-operation and Development’s (OECD’s) composite indicator has risen 16 of the past 17 months, with the exception being a bad weather month in North America.
“Everything is coming back a whole lot stronger than even the optimists were expecting.”
There’s also strong evidence of pent-up demand, said Hall, especially in the United States. Annual housing starts there had tumbled from a pre-recession level of between 2.1 million and 2.4 million to about 500,000 he said.
With the U.S. generating about 1.4 million new households every year, the surplus has now been absorbed and turned into a deficit.
“That’s not the only place there’s pent-up demand,” he added, noting that the average age of cars in the United States is more than 10 years.
“That’s why they’re selling 16 million units a year and that’s why they could sell 18 million units a year.”
Meanwhile, companies that held off making capital investments during the recession are finding they can’t keep pace with demand for their products, said Hall. The same is true in Europe and other regions.
“There’s pent up demand across a broad swath of the wealthy world.
“Everybody has been putting off their investments for five-plus years.”
There’s also a renewed optimism in the United States, said Hall.
“Trend confidence is rising very appreciably at the moment. That is the most amazing thing for me that has happened.”
The same is true elsewhere, he said.
“Even Japan, with all their structural difficulties, they’re feeling much better about themselves.”
Finally, it appears that many governments no longer need strict austerity measures to control their debts, said Hall. That should help boost their economies.
Export Development Canada is forecasting American growth of three per cent this year and nearly four per cent in 2015.
The rest of the industrialized world is expected to reach 2.2 per cent this year and 2.8 per cent the next, while emerging markets should average 4.9 per cent in 2014 and 5.5 per cent in 2015. China is projected to hit eight per cent next year.
Canada is in a different situation than the United States and many other countries, suggested Hall.
High consumer debt, an overbuilt housing market and continued austerity measures by some provincial governments could hamper growth here, he said.
But the country should benefit from trade — which is expected to increase by six per cent both this year and next, and from investment in trade-related infrastructure.
“We have 600 resource projects that are on the docket at the moment.”
These should stimulate the Canadian economy, he said.
Hall also thinks Canada will benefit from having a broader range of trading partners than was the case before the recession.
“Diversification into emerging markets has grown from a mere four per cent of our merchandise trade to 12 per cent from 2000 through to 2013. That’s a pretty remarkable transformation.”
The middle classes in those emerging markets are growing quickly, he pointed out, which bodes well for Canada’s agriculture sector.
Export Development Canada is a Crown corporation that provides financing and risk management services to Canadian exporters and investors.