Canada's economic growth shifts to exports: EDC Forecast

OTTAWA, April 23, 2013 /CNW/ - Pent-up demand is reappearing in key economic indicators following 4 years of sluggish global performance, setting the stage for an acceleration in world growth, according to a Global Export Forecast by Export Development Canada (EDC).

"Shaking off the memories of recent growth crashes, some as spectacular as they get, will be tough," said Peter Hall, Chief Economist, EDC. "But as the race gets going and the adrenaline kicks in, economies may even surprise themselves with their renewed performance. The acceleration will lift the world economy by 3.6 per cent this year, and 4.2 per cent in 2014. It looks like this time, the race is on."

"Canadian growth will soon require some fancy gear-changing, and it will be up to trade to shore up the bottom line as the domestic economy slows. It won't disappoint," said Mr. Hall. "Exports will leave last year's modest growth in the dust, rising 8 per cent this year and an additional 5 per cent in 2014, benefiting from the resurgence in our largest trading partner, the U.S."

While Mr. Hall acknowledges that recent confidence indicators are creating doubt in the global economy's short-term prospects, he points to the building blocks of an economic recovery that have been taking shape over the past six months.

"Quietly, amid the gloom, a different story has been building. Lending activity is improving, bond market spreads are narrowing nearly everywhere. There's even evidence of 'fright fatigue', a sign of confidence in the policy responses to successive panic points. And perhaps quietest of all, time has brought healing. Pent-up demand is now showing up in key indicators."

The forecast cites that the core source of global economic strength is the U.S. economy, where multiple indicators show that the economy is ready to race. Mr. Hall noted that U.S. housing, a key harbinger market for the greater economy, has finally rebalanced and is re-igniting dormant residential construction.

"Given the U.S. housing market's broad linkages to the rest of the economy, that's great news," Mr. Hall explained. "Consumer spending is vibrant again, this time without diving into debt. Already in comeback mode, business investment has only just begun, given corporations' $6 trillion cash stash. Hot private sector growth is being masked by government cutbacks, which are holding overall growth to 2.3 per cent this year. Next year's 3.3 per cent gain better represents the groundswell of growth that is already well underway."

Collectively, emerging markets are forecast to grow by 5.5 per cent in 2013, and to build up further to 5.9 per cent next year. The forecast notes China's rebound, turning around last year's deceleration into 8.2 per cent growth this year, and an even more comforting 8.5 per cent in 2014. India is less certain, returning more gradually to higher growth than was realized in 2012. Brazil's disastrous 1.0 per cent showing will not be repeated this year, and is expected to be closer to 3.4 per cent growth this year and 4.0 per cent in 2014. Mexico appears to be the stalwart in the large-market club, posting stable and impressive growth in the next 2 years.

Saddled with more consequential structural difficulties, the forecast notes that Europe has not worked off its pre-recession excesses to the same extent as the U.S., and is still mired in recession as a result. The forecast calls for growth of 0.2 per cent this year in the Eurozone. However, European economies will benefit from the revival in the U.S. and getting beyond the worst phase of public cutbacks, moving up to region-wide growth of 1.2 per cent in 2014.

EDC predicts a softer loonie, largely owing to weaker commodity prices and the recent dimming of Canada's halo effect. The dollar is forecast to average 0.97 cents U.S. this year and 0.96 cents U.S. in 2014.

EDC's semi-annual Global Export Forecast addresses the latest global export conditions including perspectives on interest rates, exchange rates as well as export strategies to help Canadian companies minimize risk. It also analyzes a range of risks for which exporters should be prepared. The forecast is available on EDC's website: GEF Forecast.

EDC is Canada's export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC's knowledge and partnerships are used by more than 7,400 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining and a recognized leader in financial reporting and economic analysis.

SOURCE Export Development Canada




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