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Amid the Gloom of the Economy, There's a Silver Lining

Posted: 04/25/2013 5:07 pm

It's race day, and the top cars in the world are lined up. Normally psyched up, this time the drivers are very nervous. They remember the big crash of 2008 that wiped out the 2009 season. Etched on their minds is also the accident-plagued reboot to the program in 2010. And the repeated aborted restart in 2011. 2012 was more of the same. So their jitters about this race day are justified. Are these drivers - the economic powerhouses of the world - in for yet another disappointment, or is this time different?

Jitters about the economy's near-term future shroud the planet. Confidence indicators for the largest economies are stuck in deep mud, stoking fears of a self-fulfilling slump. The latest data aren't helping. But quietly, amid the gloom, there's a different story. Lending activity is beginning to improve. Bond market spreads, even in precarious markets, are narrowing. There's even evidence of 'fright fatigue' -- a sign of confidence that the periodic crashes have been well-managed. And perhaps quietest of all, time has brought healing. Pent-up demand is now showing up in key indicators.

In pole position is the U.S. economy, where multiple indicators show that the economy is ready to race. Housing -- the harbinger market -- has rebalanced, re-igniting dormant residential construction. Given this market's broad linkages to the rest of the economy, that's great news. 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 today is well underway.

Key emerging markets were tossed about by last year's extended pit-stop. However, most now seem to be on the mend, as a combination of US growth and fresh policy measures kicks up growth. China is forecast to rise from 7.8 per cent growth last year to 8.2 per cent this year and 8.5 per cent in 2014. Likewise, India will trade in last year's 4.5 per cent rise for accelerating growth above 6 per cent this year and next. Brazil will rebound to normal growth following last year's 1 per cent fright. Russia is in for a mild one-year dip in 2013, while Mexico will make it three years at 3.8 per cent growth.

Further back in the pack are the remaining large players. Europe is accelerating, but slowly. Large public spending cuts will keep the Euro Area flat this year. Austerity will take less of a bite in 2014, lifting growth to 1.2 per cent. Japan has gained some psychological lift from new, aggressive policies; nonetheless, growth is forecast to slip to 1.4 per cent this year and 0.9 per cent in 2014.

Canadian growth will soon require some fancy gear-changing. Debt-laden consumers, overbuilt housing markets and public-sector restraint are already weighing on domestic growth. It's up to trade to shore up the bottom line, and it won't disappoint. 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. Most industry sectors will see big gains this year, and the forestry, machinery and equipment and aerospace sectors will power exports ahead in 2014. Weakness in key commodity prices will dampen overall performance next year.

The bottom line? Shaking off the memories of recent growth crashes -- some as spectacular as they get -- will be tough. But as the race begins and the adrenaline kicks in, economies may even surprise themselves with their speed. It all adds up in EDC's Spring 2013 Global Export Forecast to world growth of 3.6 per cent this year, and 4.2 per cent in 2014. It looks like this time, the race is on.

 
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