U.S. set to lead the way
Economy poised to grow on broadly based front
After staring into the abyss in 2011, the United States will serve as the surprising engine of growth in the coming year as the developed world struggles with the European crisis and emerging markets soften, Export Development Canada said in its winter forecast.
Peter Hall, chief economist with EDC, called the recent steady improvement in the U.S. economy after a calamitous 2011 that included a debt-ceiling crisis and subsequent downgrade “inspiring” to the rest of the world.
“U.S. growth is happening in spite of the predictions of most and it is occurring in a context of widespread world weakness,” he said. “This time around, U.S. growth is accelerating without the aid of additional public stimulus. Also, it’s not a one-sector wonder, but a broadly-based movement.”
There are still risks ahead. EDC has actually revised its global growth estimate for 2012 downward to 3.7 per cent from the 4.3 per cent it forecast in its fall 2011 outlook, citing heightened political turbulence, including the threat of an escalated conflict with Iran; softening growth in the BRICS (Brazil, Russia, India and China) while developed economies become bogged down by their own fiscal woes; and reduced access to financing.
“To top off the list of risks, consumers and businesses are still a lot gloomier than their actual economic activities suggest.”
The EDC report suggests the situation in Europe is a little worse than most had thought, while the U.S. is in a much better position than most had thought.
“Many risks still cloud the outlook, but the recent, steady and broad-based increase in U.S. economic activity is a key development that suggests that the U.S. will be the world’s engine of growth in 2012.”
Activity in the U.S. and Japan will be responsible for the slight increase in global economic growth from the 3.5 per cent posted in 2011, the EDC said.
Some of the “upside economic surprises” from the U.S. have included a strengthening labour market, firming manufacturing and service-sector activity, and gains in consumer spending, RBC economist Dawn Desjardins said in a report released Thursday.
External factors will continue to weigh on Canada’s economic performance. Consumers have kept the Canadian economy going, but record-high household debt and a stretched housing market will curb spending.
But the combination of Canadian weakness and U.S. strength will mean a slight devaluation of the loonie into the 98-cent US range, enough for Canadian exporters to take advantage of a resurgent U.S. economy, with exports growing by six per cent in 2012 after making an 11-percent jump in 2011.
“Canadian exports remain remarkably resilient. Rapid growth in sales to emerging markets is helping to compensate for weaker growth in traditional markets. It certainly doesn’t hurt that the U.S. market finally seems to be on the mend,” he said.
The forecast is for energy exports to remain flat, metals to grow by 3.2 per cent and the agri-food sector growing by 2.7 per cent. But “in each case, weakening prices are a huge factor; volume shipments will still be growing strongly,” Hall said, adding the forestry, automotive and aerospace sectors should see double-digit gains this year.