Pop­ulism, pro­tec­tion­ism im­ped­ing growth, EDC says

Calgary Herald - - FINANCIAL POST - TOM BLACK­WELL Fi­nan­cial Post tblack­[email protected]­media.com

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.”

AN­DREW VAUGHAN/THE CANA­DIAN PRESS FILES

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.

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