Lots of pent-up American demand should provide a big lift for Canadian exporters, economist says.koya79/Getty Images/iStockphoto
To many experts, uneven growth spells trouble for Canada.
Not Peter Hall, chief economist at Export Development Canada. He said the suddenly surging U.S. economy has more than enough momentum to lift Canada and much of the rest of the world out of its funk.
"It goes against the grain," Mr. Hall acknowledged in an interview Monday. "We've been conditioned to look for the weakness. But the U.S. is looking pretty strong to me."
EDC is releasing a new forecast Tuesday for the Canadian and global economy – projections that are significantly more optimistic than the Bank of Canada and many private sector economists.
EDC says Canada's economy will grow 2.8 per cent in 2015, up from 2.2 per cent this year, driven higher by growth of 3.6 per cent in the U.S. and 4 per cent in the world.
By comparison, the Bank of Canada is projecting growth next year of 2.4 per cent in Canada, 2.9 per cent in the U.S. and 3.4 per cent for the world, according the central bank's latest monetary policy report, released last week. Capital Economics expects Canada's economy to falter next year, slowing to 2 per cent growth, according to a forecast released Monday.
Mr. Hall argued that many forecasters underestimate growing pent-up demand in the U.S. – in consumer spending, housing and business investment.
"There is a multifront weight of evidence on the strengthening of the U.S. economy that we haven't seen since the financial crisis occurred," he said.
"The U.S. is the only place on the planet that seems to be able to generate decent domestic growth."
Mr. Hall also pointed to other signs of strength, including a move away from government austerity, rising consumer and business confidence, and an uptick in various key leading and lagging indicators.
This is all good news for Canadian merchandise exports, which are rising at a 7-per-cent annual rate so far this year, after inflation. Total export growth will reach 10 per cent this year and 6 per cent next year, or enough to persuade Canadian exporters to start investing in new plant capacity, according to EDC.
"It doesn't hurt when our top customer is doing as well as it is," Mr. Hall said. "Clearly, the U.S. is driving that and we are capitalizing on it."
Add in a Canadian dollar that the EDC says will stay in the low-90-cent (U.S.) range for the next two years, and the components are in place for the Canadian economy to grow more rapidly.
Mr. Hall said forestry and primary metal producers are already benefiting from higher exports. Higher valued-added manufacturers, including makers of machinery and equipment, are also exporting more, he said.
But Mr. Hall insisted his optimism isn't entirely predicated on what's happening in the U.S. The rest of the world isn't doing nearly as badly as many economists believe, he said.
The weakness in the price of oil isn't so much a sign of global economic weakness as it is evidence of oversupply and prices being driven artificially higher by quantitative easing monetary policies in the U.S.
"We don't see oil price weakness as being inconsistent with a revival in growth," he said.
The "knock-on" effects of the U.S. rebound will also be felt in most Organization for Economic Co-operation and Development and emerging economies, according to the EDC forecast.