Go to the Globe and Mail homepage

Jump to main navigationJump to main content

People stroll by Lehman Brothers Holdings Inc.’s head office in Tokyo. (Katsumi Kasahara/Associated Press)
People stroll by Lehman Brothers Holdings Inc.’s head office in Tokyo. (Katsumi Kasahara/Associated Press)

The global economy’s long climb back to the new normal Add to ...

There is perhaps no more potent symbol of the post-Lehman Brothers global collapse than what happened in Detroit.

A bankrupt city. A crippled auto industry. Workers with no future.

Fast forward five years. Last week, Ford Motor Co. repatriated much of the production of the Fusion – a popular sedan previously made only in Mexico – to a plant in Flat Rock, Mich., 40 kilometres outside Motor City. The company added 1,400 jobs to staff the new line.

As the U.S. auto industry rebounds, Americans are buying and borrowing again. Factories are hiring and revving up. Workers are buying homes.

They’re signs of a U.S. renaissance, and the first steps back to normal for the global economy.

Global momentum is shifting back toward the United States, the world’s largest economy, which was rocked by the Lehman collapse in mid-September, 2008, and spent years afterward limping along. There are also indications of a nascent recovery in Europe, where the economies of most countries are picking up after years of recession and financial crisis. In Japan, stuck in low-growth mode for a generation, Abenomics is beginning to bear fruit.

“The future is suddenly looking brighter for the global economy,” said Ed Yardeni, chief investment strategist at Yardeni Research Inc.

Analysts say this new normal will feature a number of important shifts: a stronger U.S. dollar, downward pressure on commodity prices, faster global growth, and, eventually, an easing of painful government cutbacks.

“The U.S. is the absolute linchpin to global growth,” said Drummond Brodeur, senior vice-president and global strategist at Toronto-based money manager Signature Global Advisors.

While there are hints of economic improvement elsewhere in the world, it is what happens in the U.S., and to a lesser degree China, that will matter most over the next few years, he said. “The U.S. is poised for a sustainable, multiyear growth trajectory,” he said.

To be sure, the recovery in Canada and elsewhere is fragile, highly dependent on rising U.S. demand, and threatened by the prospect of vanishing cheap credit.

And there are challenges for emerging economies, which have seen a gusher of investment since the Great Recession, beneficiaries of the U.S. Federal Reserve’s easy money policies. Now as the Fed prepares a return to more normal monetary conditions, money is returning to the U.S. and other advanced economies. “Momentum in advanced economies has moved up, but that has been happening at the same time as momentum in some of the emerging economies has weakened,” explained Jorgen Elmeskov, deputy chief economist at the Organization for Economic Co-operation and Development in Paris. “In a sense, this is a reversal of what has been the pattern over recent years.”

Over all, though, a brighter picture is emerging. Peter Hall, chief economist at Export Development Canada, is optimistic about prospects and says most of the advanced economies in the OECD are seeing an “economic renaissance.”

“Growth is going to look much more normal than anyone’s expecting,” Mr. Hall said.


Geopolitical concerns, particularly Syria’s civil war, overshadowed other topics at this week’s G20 meeting.

Unrest – including a possible U.S.-led military strike in Syria along with political instability in Egypt – has already translated into higher oil prices, sending West Texas intermediate crude oil to a two-year high last week and fuelling demand for currencies linked to commodities, such as the Canadian dollar.

Central bankers are keeping a close eye on the impact of Middle East tension. “Geopolitical stresses [are] putting some upward pressure on global oil prices,” the Bank of Canada noted this week.

Instability has a multitude of spillovers, from increasing market volatility to stunting economic growth.

The Middle East isn’t the only uncertainty for financial markets. Germany is holding elections this fall and Brazil next year, while the Federal Reserve is poised to select a new chairman in the coming weeks.

Taken together, it suggests the wild ride for investors isn’t likely to quiet any time soon.


The return of Ford, alone among its U.S. peers in not filing for bankruptcy protection and not taking a government bailout, and the other U.S. auto makers is just one clue that consumers are spending again in the world’s largest market.

And that bodes well for Canada and the rest of the world, where consumer confidence remains softer.

U.S. real consumption grew at an annual rate of 2 per cent in the first half of the year, in spite of tax hikes on higher-income earners imposed by Congress.

Americans are feeling better because the value of their homes is rising, their stock portfolios are generally up and more of them are working. Unemployment is now at a post-recession low of 7.3 per cent.

Report Typo/Error
Single page

Follow us on Twitter: @taviagrant, @barriemckenna

Next story




Most popular videos »

More from The Globe and Mail

Most popular