We are not alone. Canada’s economy is facing slower domestic demand as consumer and housing markets soften, while the faltering global economy has caused the promising export sector to sputter. The developed world generally shares the angst: the once-mighty consumer sector, still by far the largest chunk of GDP growth, is ageing and doesn’t have the same voracious appetite as in yesteryear. Housing markets have been a colossal disappointment this cycle, failing as yet to provide the heft and signalling of future growth that they’ve done so capably in the past. If this is a growth quandary for wealthier markets, it’s clearly holding emerging market potential hostage. Are we veering in on a hopeless situation, or is there growth to go for?
In short, there is plenty of growth out there; but the sources of growth are shifting. We probably don’t yet fully appreciate the extent to which the Western world’s post-war baby boom has driven global demand. Those consumers are now well past their prime consuming years, with the population cohorts replacing them not only smaller but less engaged in the economy. Structural factors like this have combined with cyclical anomalies to produce a diminutive decade that has many concluding that sluggish growth is a permanent feature of the global economy.
Technological change has rescued us from a gloomier fate. The rapid adoption of high-tech capabilities in traditional products like cars, appliances, home systems and so on have accelerated depreciation of consumables, and as such the need to update these items more quickly than in the past. But at best, this is only temporary respite; an ageing population is less tech-savvy, and might just be OK with retro goods and services. Also, those higher-tech goods – especially autos – are lasting longer, weighing against the need for replacement. And they are being displaced by higher consumption of services, a burgeoning hub of activity but one where measurement of productivity is complex at best.
If the consumer magashift in the developed world is a structural weight holding growth down, it has its mirror image in the emerging world. In stark contrast, emerging economies have the ability to develop at a faster pace than ever before, thanks to technology. Vastly lower communication costs and key ongoing innovations in transportation and logistics have shrunk the world in a way that has greatly enhanced growth-inclusivity. Economies – even the smallest ones – previously shut out of the world’s trade mainstream now have much easier access, and the catch-up wealth gains are making their way to regular citizens. One of today’s most potent growth-forces is the increase of the emerging market middle class which, even in developing countries with ageing populations, is transforming the global demand landscape.
This shift is naturally altering the global power-base from the developed to the emerging world, a change that is generating the expected political fallout. But it is one where both sides need the other, in many ways. The most basic relationship is that emerging powerhouses still need well-functioning global trading mechanisms; growth will still be fuelled by large developed markets. Those markets, in turn, are more reliant on the increasing import needs of the wealthier emerging middle class, demands that far exceed their own economies’ capacity to meet.
These major movements are being smothered by current trade rancour. Unlike some others, we see a positive end-game. Each side in today’s multiple trade debates has too much to lose if the battles actually undermine the system. Rather, this is a system that is undergoing the needed mid-course adjustments that will ensure a more level trade playing field. Recent multilateral trade agreements have actually significantly improved the global trade space by dealing with perennial irritants like trade in services; intellectual property protection; agriculture, non-tariff barriers; and currency management issues.
The bottom line?
Catch-up economies will be increasingly important to the global growth profile. Diversification of activities on both emerging and developed economy sides will be instrumental to maintaining and enhancing the world’s expansion path. Canada’s diversification drive is spot-on; pass the catch-up!
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