OTTAWA, Ont.--Peter G. Hall, vice-president and chief economist at EDC, said in his weekly report that Canada “seems to be losing some of its recent gleam”. While post-crisis, the country received accolades for its financial stability, fiscal prudence, rich resource base and resilient domestic demand, now “our consumers are fast becoming as indebted as pre-crisis Americans, housing activity is overblown, and commodity prices have softened,” said Hall.
Against expectations, exports have also remained stubbornly lacklustre, he said.
Hall said that it is puzzling that weakness here is bucking against momentum in the developed world.
“The OECD leading indicator now boasts an atypical year-long increase. Japan just saw an impressive six-month run of GDP growth that is stoking optimism. The EU has recently broken out of its six-quarter recession. As for the US, it picked up first, and is the furthest along the recovery road, although fiscal drag has been masking private-sector success. So much for recent stats – is it sustainable?” he asked.
Hall said that after five lean years, there is considerable evidence of pent-up demand in key markets. The US housing market is an obvious, but not isolated, example of this broader global phenomenon, he said.
"But the world doesn’t just have to consume more; now, it wants to. One of the most significant recent developments in the global economy is the return of confidence. Crisis robbed the economy of confidence for an unusually drawn-out period. Confidence is now rising even in Japan and Europe, and in the US it has conclusively burst out of an extremely rare four-and-a-half-year recessionary funk. This could prove to give global commercial activity the biggest lift it has seen since 2007," he said.
Fiscal improvements, he said, are giving governments needed leeway to proceed with current fiscal plans – which will be much less of a drag on world growth in 2014. This end of tightening will bring a growth dividend that is sure to add inspiration to reviving confidence.
Global growth is projected to increase to 3.9 per cent in 2014, a solid step toward a sustained new growth cycle following two years of 3.2 per cent growth. For the first time in a long while, industrialized markets are forecast to contribute more to world GDP growth than the emerging world. Led by the US, industrialized markets will almost double this year’s growth in 2014, notching up an increase of 2.3 per cent, he said.
"Canada’s overall numbers are not as impressive, but they reflect the growth rotation that will see exports and business investment grab the baton from the consumer and housing sectors. Conditions already favour export growth: a weakening loonie, a surge in leading sectors, a key export market that is leading the way, and strong demand for resources. As such, Canada’s exports will rise 5.3 per cent in 2014 after seeing a 4.4 per cent increase this year. Leading sectors include forestry, aerospace and machinery. Autos, fertilizers and the advanced technology sector will not fare as well. The bottom line? A new economic cycle is in the works. We can expect a few wobbles as governments remove the training wheels, but like all new cycles, we’ll likely get used to a more balanced ride sooner than expected. Canadian exporters are well placed to capitalize on this, and given low domestic growth prospects, the timing couldn’t be better," said Hall.