(Ottawa) – April 24, 2014
A new forecast by Export Development Canada (EDC), the country’s leading financier and insurer of exporting companies, predicts that the global economy is on the verge of a rush of economic growth.
The forecast suggests that the excesses from the previous growth cycle have been worked off after more than five years of recovery and that the global economy has finally reached a tipping point. While key risks still threaten the outlook, the forecast notes their declining severity thanks to increasing momentum and firmer growth fundamentals.
“It’s easy to forget that consumers and corporations have been living off the excesses of the past cycle since the 2009 crash. That surplus is now gone, and both industry and consumers are having to open up their wallets in a big way,” said Peter Hall, Chief Economist, EDC.
“Tight industrial capacity and basic consumer needs suggest that the global economy is finally shifting back into growth mode. The fundamentals are there, and growth seems certain provided we can shrug off our slow-growth psychology,” Mr. Hall added.
The forecast noted that OECD nations, accounting for roughly half of global GDP, are currently driving global growth with key indicators rising steadily for well over a year. The U.S. economy is leading the charge, with growth predicted to increase from 3 per cent this year to just under 4 per cent in 2015.
The groundswell of demand from OECD nations is expected to reinvigorate emerging markets through 2014. The forecast outlined that sluggish post-crisis trade activity turned emerging markets inward, but suggested that their domestic growth was now tapped out. Revived global trade is forecasted to reboot emerging market growth to 4.9 per cent in 2014 and 5.5 per cent in 2015.
“Let’s be clear, though, the global path to growth will be no cakewalk,” explained Mr. Hall. “The world economy’s greatest near-term challenge is the unwinding of extraordinary monetary policy. The historical debut of quantitative easing is in the final act, but there’s not much of a script to go by.”
Mr. Hall further explained that “it’s a balancing act. Growth is initiating the tightening, and so far emerging markets seem to be feeling the greatest effects. Simultaneously, they’re facing the end of abundant liquidity and the return of global trade.”
The timing is fortunate for the Canadian economy, which is facing a soft outlook on the domestic front. Exports and trade-related business investment will benefit from stronger global growth. The forecast noted that the Canadian dollar is already cooperating. Weaker resource prices, a stronger U.S. dollar, slower domestic growth and a dimming of the ‘halo effect’ have all weighed on the currency. As a result, EDC is forecasting that the loonie will average USD 0.93 this year and next.
“For companies focused on the domestic market, 2014 is likely to be a tough year,” added Mr. Hall. “However, it‘s not all bad news for the Canadian economy, with a number of key indicators suggesting the outlook may not be so bleak.”
The lower dollar, relative to the USD, could add as much as a half-percentage point to GDP in 2014. The forecast explains that certain exporting industries have built up spare capacity during the downturn and can ramp up activities to meet new demand. The extra cash on the balance sheets of Canadian exporters also means that they have the ability to invest in new machinery and equipment.
“A key challenge for Canada is responding to increased global demand,” said Mr. Hall. “Success will be determined by how quickly the economy refocuses its efforts on international trade. And this isn’t just about U.S. trade. The resurgence in emerging market demand will give Canadian exporters further opportunity to capitalize on trade diversification.”
As a result of these trends, EDC forecasts Canada’s GDP growth will accelerate from 2.2 per cent this year to 2.7 per cent in 2015. Export growth will reach 2.5 per cent this year and rise to 5.8 per cent in 2015.
EDC’s semi-annual Global Export Forecast addresses the latest global export conditions including perspectives on leading economic trends and export strategies to help Canadian companies maximize their export growth. The forecast also analyzes a range of risks for which exporters should be prepared.
EDC is Canada’s export credit agency, providing financing and insurance solutions locally and around the world to help Canadian companies of any size respond to international business opportunities. As a profitable Crown corporation that operates on commercial principles, EDC works together with private - and public - sector financial institutions to create greater capacity for Canadian companies to engage in trade and investment.
For more information about how EDC can help your company, visit www.edc.ca
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