For five years after a crippling recession, the world economy has struggled to regain its footing. Two steps forward one step back has been the order of the day, leading to one of the weakest post-slump recoveries in history, with hundreds of millions unemployed left behind, Europe continually looking over its shoulder for the next crisis strike, and even China suffering through industrial disease as its two biggest markets cut back.
Even in Canada, one of the most fortunate economies during the slump, the road forward has not been altogether smooth. While Canada recovered all the jobs it lost and more, recent employment growth has been slow. Meanwhile the domestic economy, which benefited from government spending and low interest rates, has in truth been living on borrowed time, and money. In other words, the world has missed Uncle Sam and Canada has missed its export sector.
But this year may be different …
For the first time since the recession, America appears poised to assume its traditional leadership role on the global stage. The evidence is fresh, but strong. After a disastrous first quarter to 2014, mostly the result of major ice storms throughout the east coast, the second quarter saw a 4.6 per cent rebound and the third looks equally convincing.
There have been false starts before, but this growth cycle looks like the real thing, says Peter Hall, Export Development Canada’s (EDC) chief economist, as he begins a cross country tour to share the latest Global Export Forecast. The fact is the five-year wait has not been wasted; it may have been a necessary pre-condition allowing for time to heal the wounds of the Great Recession — for indebted households to restock their financial cupboards, for an overbuilt housing market to become an underbuilt one, for the family car to age to the point where the sensible choice is to purchase a new model, for businesses to put their profits to use on new investment.
In short for pent-up demand to do its work as it does after every recession.
“Pent-up demand means that consumers and businesses will be forced to get out there and spend,” Hall says. A second necessary condition is that they want to, and the evidence is that they do. “And for the first time in five years indexes for both consumer and business confidence are consistent with the sustained growth story, he adds.” Furthermore, the US housing market is back, along with consumption, business are investing again and austerity measures have run their course.
Hall forecasts the U.S. economy will leap forward of 3.6 per cent in 2015, the biggest growth rate since the recovery’s beginning. But is the U.S. strong enough to pull along other economies? The answer is yes, says Hall.
Representing 19 per cent of world output, he believes that is enough to boost the global economy to four per cent growth in 2015. Canadian exporters, which represent about one third of Canadian GDP, stand to be among biggest beneficiaries. From the auto sector, to forestry, machinery and equipment and aerospace, revitalized U.S. demand and a weaker loonie (in the 90-cent range), will see the export sector build on a strong 2014.
In fact, EDC expects that Canadian exports will see a healthy 10 per cent growth rate this year. And in 2015, Hall is predicting another 6 per cent growth.
Moody’s Analytics chief economist Mark Sandi is equally bullish on America, despite some concerns that Europe could fall back into recession in Europe and that China’s growth has slowed. That won’t deter U.S. growth, says Sandi, because the U.S. economy is only 13 per cent dependent on exports. “In the U.S., the consumer is king and households are ready to spend again. That they are is already evident in the rebound in auto purchases, although the full recovery in the all-important home buying resurgence will take a little longer.”
It’s been a long time since exports have been able to make such a positive contribution to Canadian growth, and it couldn’t have come at a more opportune time, says Hall. “Our outlook is actually for a soft domestic side of the economy. We have an overbuilt housing market and consumer indebtedness is high, while at the same time it’s anticipated that the Bank of Canada will move to higher interest rates, which will influence behaviour more than normal,” Hall explains.
“We can now say that exports and export-oriented business investment will be the drivers of the Canadian economy.” And that also represents a new, and welcome, phase of the post-recession recovery.