Populism, protectionism impeding growth, EDC says
The global economy is riding a sustained growth high, but the forces of populism and protectionism are pushing back and preventing what could be even greater expansion, a top federal economist says in a new analysis.
Canada’s trade deal with the U.S. and Mexico is a “massive relief ” to industry, said chief economist Peter Hall of Export Development Canada, as the agency released its global economic outlook.
But that good news — along with “pent-up demand” and other positive fundamentals — is tempered by the trade wars triggered by U.S. President Donald Trump, headwinds that are deterring muchneeded business investments, he said.
Ironically, Canada’s attempts to expand its export markets beyond North America are exposing it to uncertainty that has lessened here, but continues in the rest of the world, Hall said in an interview.
“We’re dealing with the rise of populism, the questioning of all the rules,” he said. “The fact that businesses are reticent should really be no mystery.”
“If we didn’t have headwinds, if we didn’t have these encumbrances right now, the question is: How fast would we actually be growing?”
The Crown corporation’s economic outlook predicts Canada’s economy will expand 2.2 per cent this year and 2.1 per cent next year, while the U.S. should see its GDP grow three per cent in 2018 and 3.3 per cent in 2019. The Canadian dollar will average US77 cents this year and 79 cents next, the EDC predicts.
Meanwhile, emerging-market economies are expected to swell by close to five per cent this year and next, the corporation suggests.
That “remarkable” global growth, occurring amid “the mayhem” of a tumultuous political landscape, is largely thanks to pent-up demand, a sure sign the current booming cycle will not end any time soon, argued Hall.
Demand can be seen in public infrastructure that needs upgrading, a desire for more housing and in businesses that are overdue on expanding their capacity, he said.
Companies had “over-invested” prior to the Great Recession and were able to coast on those inputs until recently. But investments by cash-rich businesses in new plants and equipment can no longer be put off, said Hall.
Meanwhile, the agreement in principle on a new North American trade deal — the United States Mexico Canada Agreement — has removed a major dark cloud over the economy.
That’s the good news.
But it is moderated by the reverberations of Trump’s other trade moves, especially the steep tariffs he’s slapped on imports to force the hand of international rivals. That, of course, has resulted in retaliation by those countries.
It gives pause to a business wondering if now is a safe time to increase capital spending in response to growing demand, said Hall.
“That what could compromise growth, even in the near to medium term,” he said. “They could be in a situation where they simply are incapable of meeting orders.”
The Bank of Canada’s business outlook survey earlier this week, however, found Canadian businesses in an upbeat mood.
“Firms continue to be optimistic about export demand, with businesses, on balance, expecting foreign sales to grow at a greater rate over the next 12 months,” the bank said in a report. “While U.S. trade protectionism was cited as a constraint for some firms selling into the United States, most expect to benefit from healthy U.S. household demand and robust U.S. business investment.”
Chief economist Peter Hall of Export Development Canada says “remarkable” global growth is largely thanks to pent-up demand, a sign the booming cycle won’t end soon.