While the negotiation of the new U.S.-Mexico-Canada Agreement is a huge relief to Canadian exporters, the global threats of protectionism, populism, and rising interest rates continue to complicate decision-making.
Still, the economics team at Export Development Canada sees hope in its biannual Global Economic Outlook, forecasting global growth to increase by 3.2 per cent in 2019, a repeat of 2018 performance. “Growth is strong – powered principally by the U.S. economy – and it’s spreading,” said Peter Hall, Chief Economist at EDC. “There is a lot of evidence that this has spurred activity in Europe and is making its way into the emerging economies. But the best part is, it’s sustainable. While a growing chorus of analysts disagrees, evidence of developed-world pent-up demand cannot be denied.”
Global Economic Outlook Highlights:
- U.S. growth will accelerate from 3 per cent this year to 3.3 per cent in 2019
- Emerging markets will collectively grow by 4.7 per cent in 2018, and down a shade next year to 4.6 per cent as China eases marginally
- With stable commodity prices and a currency that will rise modestly through next year, Canada should see GDP increase by another 2.1 per cent in 2019
Danger Zones
Uncertainty on the trade policy front is undoubtedly creating an investment hesitation at a precarious moment: growth and looming capacity constraints are crying out for increased physical investment. The newly minted USMCA removes the largest piece of uncertainty for companies in this region, but protectionism is still alive and well in other arenas – and with it, doubts that inhibit trade-related activities.
At the same time, higher interest rates are a reality that an entire generation has never had to deal with.
“Adjustment will be hard enough in developed markets, but larger, destabilizing swings in the emerging world will be with us for some time to come,” said Hall. “Managing through these issues will be a near-term strategic imperative.”
The Canadian Story
Canadian exporters have the opportunity to take advantage of the moment. Sustained economic growth means increased demand for products and services. The United States will continue to be our strongest trading partner, especially with the increased certainty of a new trade agreement. At the same time, for companies considering diversification, strong growth coupled with new trade agreements in Asia and Europe offer up great potential.
Export growth prospects will help to keep Canada’s consumer sector expanding, in spite of elevated personal debt levels and an overheated housing market. Higher interest rates will further limit domestic growth, although rate hikes will be more gradual in Canada than in the US.
As for the Canadian dollar, EDC Economics forecasts it will average US$ 0.79 in 2019.
