Economy at moment of truth: Export Development Canada forecast

OTTAWA, Oct. 26 /CNW/ - The unexpected slowdown of the global economy is ushering in the greatest test of the recession according to Export Development Canada's (EDC) Autumn 2010 Global Export Forecast, released today.

"Slower growth has taken the world by surprise; the sharp, six-month rebound that began a year ago persuaded many that recovery was in full swing," said EDC Chief Economist Peter Hall. "The global economy got very quiet out there mid-way through this year, and it's going to be weak for some time. Recovery is still at least a year away, and navigating though this period will be challenging - a moment of truth for the world economy."

Mr. Hall cautioned that there are four key drivers to global demand that will challenge short-term growth strategies:

• big-market consumers, a huge source of global demand, are generally quite nervous. They are already busy paying down swollen debt loads, but could weaken demand further by being frightened into more excessive thrift.
  
  
• stimulus exhausted most of the available policy ammunition. There are key doubts about both the affordability and the actual impact of augmented stimulus.
  
  
• financial institutions remain reticent about lending, a key ingredient to economic growth.
  
  
• slower growth is weighing down key emerging markets that thus far have buoyed overall demand.

EDC forecasts that after generating growth of 4.2 per cent this year, the world economy will expand by a slower 3.9 per cent in 2011. The weakness will be most obvious in developed economies, where EDC expects growth to reach 2.4 per cent growth in 2010 before sliding to 2.1 per cent in 2011. With few exceptions, EDC expects emerging markets to share in the current weakness, but with growth still ahead of average at 6.4 per cent this year and 5.9 per cent in 2011.

"At first blush, the global forecast numbers don't look bad at all, but in actual fact they mask the weakening we are currently witnessing," said Mr. Hall. "Growth for 2010 is largely behind us. The impressive back-to-back increases in GDP that began in the fourth quarter of 2009 account for the bulk of the 2010 growth, while the 2011 forecast is rescued by growth that will only arrive in the latter part of the year."

EDC's forecast calls for Canadian export sales to remain 11 per cent below the pre-recession peak, with emerging weakness crimping sales growth in the coming months and holding the increase in 2011 to single digits. Weakness is expected to be widespread, affecting export sales in most industrial sectors. EDC believes that export growth will edge down from 11 per cent this year to just 6 per cent in 2011.

"Canada will not be able to dodge the world economy's soft spot," Mr. Hall said. "The sharp global rebound was good to primary producers, shoring up demand and giving prices a boost in the oil and base metals categories. Slower growth is forecast to weigh on commodity prices and dampen growth in 2011."

"Exporters will be buffeted by a stubbornly strong Canadian dollar. Resilient commodity prices and relatively tighter Canadian monetary policy have combined with what appears to be an international 'halo effect' - due to our lauded financial system, relatively strong domestic situation and envied fiscal management record - to keep the loonie hovering in the US 95¢ range."

EDC believes that softer commodity prices and modest gains in the U.S. dollar will move the Canadian dollar slightly lower over the weak months, but that the value will average US 95¢ in 2011.

"Managing through the upcoming slow months and a continued high dollar will require ingenuity and grit," Mr. Hall said. "Slower growth promises even more intense competition, and the world's largest economies, facing weak domestic conditions, are embarking on new export-led strategies aimed at more favorable demand elsewhere."

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 at http://www.edc.ca/gef.

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 8,400 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining, a recognized leader in financial reporting and economic analysis, and has been recognized as one of Canada's Top 100 Employers for nine consecutive years.

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Media contacts:

Phil Taylor   
Export Development Canada
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