Chapters

  • Global Economic Outlook
  • Global markets
  • Working in North America
  • Commodities

Global Economic Outlook

Chapter 1 of 4

In this chapter:

High-stakes game: Uncertainty ups the ante of a global recession

Global growth is slowing—rapidly. Calls for global recession are multiplying. And it’s not just the bellwether signals going south; measured activity is sliding at an alarming rate. Is hunkering down, riding it out, and hoping we get through this with minimal damage the best we can do?

Forward-looking indicators have been telling the story for a while. Purchasing managers’ indices gave more than six months’ notice of what we now see. Hints were also evident in equity market volatility. For many, negative interest rates, monetary easing and the prospect of yield curve inversion are signs of an imminent economy-wide contraction. One look at both global industrial production and world trade, and the crowd is convinced: the good times are likely over.

A deeper look at recent gross domestic product (GDP) numbers is eye-opening. There’s clearly something wrong with global trade; exports have slowed in most regions. So has business investment on both equipment and more significantly buildings. For consumers, the picture is different. Unemployment is near historic lows, skilled labour is in tight supply, job creation continues, income is growing, and so far, consumer spending—the bulk of spending in most economies—has held up.

That’s not normal. Typically, when the economy is ready for recession, it’s ready on all fronts: Consumers recognize they’ve overdone it, businesses realize they’ve over-produced, international trade spreads out the excesses and then it all implodes. That’s the 2008-2009 story in a nutshell. 

What’s behind today’s current polarized performance? It’s the result of inadequate post-recession growth that left millions behind for many years. Their discontent fomented populism, which in turn, ultimately elected leaders to fix the problem. Policy, particularly on the trade front, is now disrupting the established order, upsetting trade, and causing business to hold off on investments. The big impasses—the United States-China trade spat, and its United Kingdom-European Union cousin—together with less prominent skirmishes, are a high-stakes game where the players are going all-in. The chips are on the table as we await the final verdict.

The outcome of the trade impasses will likely determine whether we fall into a self-inflicted recession, or re-ignite growth after resolution. Fundamentals suggest there’s little reason for a major downturn; the imbalances of 2008 aren’t there. This time it’s a policy choice—and presuming that nobody around the table wants the label of recession-creator, resolution seems the most likely outcome.

EDC’s autumn 2019 Global Economic Outlook acknowledges the current slowing, but sees a pickup in activity through 2020 that gathers momentum into 2021. Global growth slips to just 3% this year—the worst performance in a decade—but we expect it’ll rise to 3.6% in 2020 and 4.2% in 2021. The same pattern is expected in the developed world, where growth should swell to 2.5% in 2021, and in emerging markets, where the pace is more than doubled at 5.2%. Against this backdrop, we expect stronger commodity prices, although the gains are modest.

Canada’s domestic fundamentals are comparatively weak. However, the global revival is forecasted to save the day for us, too. A stable, mildly-appreciating Canadian dollar further supports export growth which, rising to 5.7%, offsets enough consumer weakness to generate 2.1% growth by 2021.

The bottom line? 

The stakes are high. Economic logic is clear: resolving the key trade impasses is in everyone’s best interests. It’s now in the hands of a few key players, and in the U.S., one decision by one person could—and likely will—change the whole game.

GEO overview

GPD Growth (y/y % change) 
2018 2019
(forecasted)
2020
(forecasted)
Developed countries 2.2 1.7 1.9
Canada 1.9 1.6 1.9
United States 2.9 2.4 2.5
Eurozone 1.9 1.1 1.3
Germany 1.5 0.6 1.1
France 1.7 1.3 1.3
United Kindom 1.4 1.1 0.9
Japan 0.8 1.0 0.3
Emerging counties 4.5 3.8 4.7
China 6.6 6.1 6.2
India 6.8 7.3 7.5
Brazil 1.1 1.0 2.1
Mexico 2.0 0.2 1.3
Total world 3.6 3.0 3.6
Global Economic Outlook (GEO)   2018 2019
(forecasted)
2020
(forecasted)
Currency Exchange rate  
U.S. dollar USD per CAD 0.77 0.76 0.78
Euro CAD per EUR 1.53 1.48 1.45
Euro USD per EUR 1.18 1.12 1.13
U.K. pound USD per GBP 1.34 1.25 1.27
Interest rates
Bank of Canada, overnight target rate 1.4 1.8 1.8
U.S. Federal Reserve, fed. funds target rate (upper limit) 1.9 2.2 1.6
Bank of England, policy interest rate 0.6 0.8 0.8
European Central Bank, policy interest rate 0.0 0.0 0.0
U.S. statistics
U.S. housings starts, thousands 1,250 1,230 1,280
Commodity prices 2018 2019
(forecasted)
2020
(forecasted)
Energy prices  
West Texas Intermediate (WTI), U.S.$ / bbl 64.84 57.75 59.23
Brent Crude spot, U.S.$ / bbl 71.06 63.67 64.58
Western Canadian Select (WCS), U.S.$ / bbl 44.63 45.21 45.66
Natural gas, U.S.$ / MMBtu 3.16 2.55 2.94
Metal prices  
Gold, U.S.$ / troy oz 1,269 1,390 1,365
Copper, U.S.$ / tonne 6,527 6,082 6,482
Global Economic Indicators 2016 2017 2018 2019 (f) 2020 (f)
(GDP (% y/y)
World Total 3.3 3.7 3.7 3.2 4.0
Developed Markets 1.7 2.3 2.2 1.9 2.2
Canada 1.1 3.0 2.0 1.7 1.8
United States 1.6 2.2 2.9 2.9 3.0
Euro Area 1.9 2.5 1.8 1.5 1.9
  Germany 2.2 2.5 1.5 1.5 1.8
  France 1.1 2.3 1.5 1.5 1.7
United Kingdom 1.8 1.8 1.4 1.1 2.0
Japan 0.6 1.9 0.7 0.7 0.4
Emerging Markets 4.4 4.7 4.8 4.2 5.4
China 6.7 6.8 6.6 6.0 6.6
India 7.1 6.7 7.2 7.5 7.6
Brazil -3.3 1.1 1.2 2.2 2.7
Mexico 2.7 2.3 2.1 2.0 2.2
Russia -0.2 1.5 1.5 1.3 1.6
South Africa 0.6 1.3 0.6 1.3 1.8
Currencies
CAD/USD 0.75 0.77 0.77 0.75 0.78
Commodities
Crude Oil (WTI, US$/bbl) 43.22 50.91 64.98 56.08 62.82
Natural Gas (Henry Hub, $/mmbtu) 2.49 2.96 3.16 2.96 3.12
Copper (USD/MT, LME)          4,862          6,162          6,527           6,562 6739
Gold (USD/oz, LME)          1,248          1,257          1,269           1,295 1255
Others
US housing Starts (000s)          1,177          1,208          1,264           1,350 1485
Fed Funds Target Rate - Upper Limit (%) 0.51 1.10 1.90 2.58 3.26

Sources: Statistics Canada, Haver Analytics, EDC Economics. 2018 is actual data while 2019 and 2020 are forecast.

Emerging and developed markets outlook

Emerging and Developed Markets Outlook CAD bn 2018 2018 Share of Total Exports 2018 2019 (f) 2020 (f)
Emerging Markets
Total Services                          20.13 3.1% 5.5% 4% 4%
Total Goods                          65.34 9.9% 13.1% 4% 7%
Total Volumes                          61.89   10.1% 2% 6%
Developed Markets
Total Services                        100.38 15.3% 5.5% 4% 4%
Total Goods                        471.70 71.7% 6.5% 3% 3%
Total Volumes                          61.89   2.5% 2% 3%
Emerging and Developed Markets
Total Exports (Goods and Services)                        657.55 100% 6.9% 3% 3%

Sources: Statistics Canada, Haver Analytics, EDC Economics. 2018 is actual data while 2019 and 2020 are forecasted.

Forecast table of GDP growth rates for select countries and regions
Forecast table of interest rates, exchange rates and U.S. housing starts
Forecast table of prices for oil, natural gas, gold and copper


 

Continue reading the Global Economic Outlook


 

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Global markets

Chapter 2 of 4

A country-by-country examination of economic trends, challenges and opportunities for growth.


 

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Working in North America

Chapter 3 of 4

A look at key economic indicators in the U.S. and Canada, including GDP and housing starts.


 

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Commodities

Chapter 4 of 4

Find out how commodities, like oil, natural gas, copper and gold are performing globally.