Peter Hall is vice-president and chief economist at Export Development Canada.
This is part of an occasional series on Canada's economy and its shift away from resources.
If Thomas Carlyle was correct and the science of economics is truly dismal, then now is its heyday. The years of substandard global performance since the Great Recession have birthed a glut of gloom. In Canada and beyond, few forecasters brave the high side, either run down by repeated retreats or fearing the "heretic" moniker. Now, there's a close cluster around consensus and a general acquiescence to "new-normal-nomics."
Thinking such as this sells well in Canada. Cautious at the best of times, we have even more to worry about today. The clarion call to debt-saddled consumers and the overbuilt housing sector has long since been sounded. Exports were seen as the way forward, a view supported by budding success. Enter the commodity-price plunge, now two years on, and that hopeful gaze has turned wistful. Many say soft resource markets reinforce the view of a weak world, dimming export prospects. As such, analysts are questioning traditional pillars of growth and contemplating new ones.
The effort is noble, but probably not necessary. Recall that the same phrases used to describe today's moribund economy were the exact adjectives penned less than a decade ago to support permanently higher growth, $200-(U.S.)-a-barrel oil and the like. Sure, there are many reasons why the "new normal" may be the right label this time. But it may be dead wrong – a convenient cover for heuristic haziness.
What if the double-length global growth cycle that culminated in five-plus years of excess, setting up the Great Recession, has actually required all of the subsequent years to use up those excesses? Then not only is there a reasonable explanation for stagnation, but also good reason to believe it is temporary. The pent-up demand evident in the United States and now more clearly in Europe strongly suggests that we are on the verge of an "old normal" growth spurt.
Perhaps that, together with a weaker dollar, is why Canadian-made vehicles and vehicle parts are in hot demand stateside. Perhaps it's behind the surge in both consumer product and aerospace exports. And growing cross-border interest in Canadian machinery and equipment. Not to mention gushing European Union demand for Canada's higher-value-added manufactures. And if there is pent-up demand, then recent success is just a down payment on future growth. Canadian manufacturing is proving that it is far from a bygone industry, a fact underlined by recent significant investments.
Emerging-market hiccups have muddied the picture, but even so, most expect them to double the growth of the industrialized world. At current growth, emerging economies are adding tens of millions to the middle- and upper-class ranks annually in the largest markets, cohorts thirsty for more of the kinds of things – a broader range of higher-value goods, and increasingly, services – that we produce and export. A crystal-clear example is the scorching emerging-market demand for Canadian food products, which is only just beginning. And if developed-market momentum is actually on the rise, prospects for emerging economies will only brighten.
Demands of these economies don't stop at higher value-added exports. Alarmist stories of a world awash in surplus resources are a mere eight years removed from widespread fears that the planet was running out. Developing economies' need for resources is undiminished, and as a result, demand for Canada's oil and gas, minerals, forestry products and other primary products will continue. Canadian supplies are even more attractive considering that geopolitics is and will be compromising vast quantities of global resources for some time to come. Canada's resource industries are far from passé, whether emerging markets come back quickly or take their time getting moving toward their true potential.
Thus far, it looks like our traditional strengths remain our greatest opportunities. Even so, success will require new approaches. Increasingly, labour constraints will necessitate more capital-intensive production at home, and foreign-sourced production. Already, a substantial economy beyond our borders, direct investments abroad will only increase in importance. It will require increased risk appetite and the savvy to succeed in less familiar settings – but Canadians have the moxy for this. It will also require us to collectively realize that this activity is not job-killing; it's actually job-preserving.
The story seems too good to be true, and perhaps it is. Populism's rise – most notable in the recent Brexit vote – presents the greatest existential threat yet to the benefits brought on by business's global reach. Frustration with the past cycle's structural weaknesses and the current one's sluggishness has prompted backlashes against globalization and the institutions and enterprises that support it. Tragically, the movement seems to be gaining momentum and, among its greatest proponent-nations, at just the moment the economy is due to rebound.
There's a lot at stake. But in the mayhem, there's more than a glimmer of hope for Canada. Our global footprint is extensive. Our exports are already growing. We are diversifying globally at an impressive rate. The domestic banking system is solid. We have a number of the key pieces in place that position us to run into the global business void created by those who are backing off at precisely the wrong moment. And we can do all this by doing what we already do well, but on a wider front.