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Surprise of the Year: Decisiveness

Weekly Commentary

December 24, 2015


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Tomorrow morning, there’ll be lots of surprises – pleasant ones, we hope, capping off a year laden with surprises that were not all as welcome. This continues a notable post-crisis trend, where surprises are so regular that they’re being described as ‘serial’, where economists are being asked to consider just writing them into their models, and businesses, into their risk plans. Is our shock-sensitivity subsiding? Are we now immune to the unusual? Has a grand attitude shift left us resigned to repeated events that are weakening the economy and eroding our hope?

A key source of post-crisis hope was the rise of emerging market behemoths. Not only was their growth superior, it was resilient. This year changed that in a big way. Sanctions plunged Russia into deep recession. Internal mismanagement now has Brazil in freefall. South Africa is bracing for a commodity-price backlash, while lack of policy progress in India has cast doubt on near-term performance. Then there’s China. Wobbles in the data, reports of egregious economic excesses and successive downgrades to the forecast have elicited serious questions about Sino-stability. The rapid currency depreciation in August brought China’s struggles into focus, and the usual overreaction. Perhaps the surprise in the battering of the BRICS this year is that we over-exalted economies that are still following the lead of the developed ‘engine’ economies. In China’s case, a lesson – all over again – that central planning can help the development process, but is certainly not invincible.

Post-crisis hope was also placed in a large group of financial instruments. Decimated returns from regular investment activity diverted liquidity into equities, bonds (high-risk, high-yielding ones were very popular), currency plays, other more marginal investment vehicles, and commodities. The ride lasted for a long time, but this year, it came to an abrupt halt. Everyone was shocked by the extent of change and volatility, but maybe the surprise was that it took us by surprise. Or maybe the surprise is that this time, it’s not about weakness, but the return of world growth. After all, the catalyst for this is Fed tightening – itself not a surprise, although the delay in the decision is.

Frustrated hope is in general, nothing new. A young generation has been waiting over seven years for the world to get back on its feet and engage them. Heightened frustration seemed to manifest itself in surprising ways this year. For instance, how about the general rise in assertiveness? It has been a long time since countries outside of the OECD in general, or more specifically, the NATO alliance, flexed their muscles, but this year saw new engagements by Russia, Turkey and Saudi Arabia. What is more, these have gone largely uncontested by established powers, possibly opening the door to others.

Frustration has had other manifestations. Migrant crises are reportedly at an all-time high, in terms of the planet’s total count of displaced persons. Anger over terrorism that is closer to home is fomenting reaction that favours more assertive politics – obvious in France, the UK, Germany and also very obviously in the rancorous US election process.

There are other reactions, though. Take for example the COP21 talks in Paris. Discussions on environmental management have been underway for decades, with certain pivotal moments, but little consensus. Perhaps the surprise this time is the securing of consensus among 180 countries, the hallmark of the Paris agreement. Time will tell whether this is a true game-changer.

It seems the global movement touched Canada in a big way this year. Beneficiaries of the resource boom, we were hit by tumbling prices early in the year, and fears of recession. Key elections during the year brought huge change at the federal level, in Alberta where the perennial Conservatives were upset, and in Newfoundland and Labrador, where the long-standing party was also shown the door. A surprise here? Canadians’ apparent willingness to loosen the purse strings once again.

The bottom line?

Dulled by years of shock and low growth, it’s hard to single out any key event as the surprise of 2015. But in this amalgam of events, there are ample clues of a growing decisiveness and determination to improve our collective lot. The timing may just jive perfectly with the economic cycle.

This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.

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Peter G. HallPeter G. Hall
Vice-President and Chief Economist

Peter Hall joined Export Development Canada (EDC) in November 2004. With over 25 years of experience in economic analysis and forecasting, Mr. Hall is responsible for overseeing EDC's economic analysis, country risk assessment and corporate research groups. In addition to preparing strategic advice for senior management at EDC, Mr. Hall is a featured speaker at conferences, international roundtables and policy fora, and regularly appears in television, radio and print media commenting on the world economy and Canadian international trade issues. He produces a widely circulated print and video weekly commentary covering an eclectic range of current global economic issues.

Prior to joining EDC, Mr. Hall directed the economic forecasting activities of the Conference Board of Canada. Mr. Hall has served as president of both the Canadian Association for Business Economics, a 600-member national association of professional economists, and its largest local chapter, the Ottawa Economics Association. He has also been a volunteer board and committee member for two Ottawa area private schools. Mr. Hall has degrees in economics from both Carleton University and the University of Toronto.

Stuart BergmanStuart Bergman
Assistant Chief Economist and Director, Economic and Political Intelligence Centre

Stuart Bergman has been the Assistant Chief Economist and Director of Export Development Canada's (EDC) Economic and Political Intelligence Centre since March, 2011. Prior to that, he was the Director of EDC's Economic Analysis and Forecasting unit. In his role, Mr. Bergman provides leadership and direction for a group of diverse and highly-specialized economists, political risk analysts and intelligence professionals, advising EDC business teams and senior management on transaction and portfolio risk mitigation, corporate planning and business development activities. He also serves as EDC's representative at national and international economic forums, delivers media interviews and is a featured speaker at conferences across Canada and around the world.

Mr. Bergman completed his graduate studies in International Economics and International Relations at the Johns Hopkins University School of Advanced International Studies.


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