World Economy Looks to U.S. as Growth Engine for 2012, Says EDC

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Export Development Canada Jan 17, 2012

Rising momentum in the U.S. economy will power the world economy forward in 2012 despite a number of ongoing risks, according to a 2012 Global Export Forecast winter update by Export Development Canada (EDC).

“This is a year where the ultimate is easier to see than the immediate,” said Peter Hall, Chief Economist of EDC. “Many risks still cloud the outlook, but the recent, steady and broad-based increase in U.S. economic activity is a key development that suggests that the U.S. will be the world’s engine of growth in 2012.”

The key risks identified by EDC include:

• heightened political turbulence, a carry-over from 2011 that has been recently aggravated by the threat of escalated conflict with Iran;
• The BRIC economies are softening while the large, developed economies are bogged down with fiscal woes; and
• Access to financing is constraining even the more promising projects.

“To top off the list of risks, consumers and businesses are still a lot gloomier than their actual economic activities suggest,” said Hall.

In spite of today’s risk-laden environment, EDC believes that the steady rise in U.S. economic momentum is inspiring for a number of reasons.

“U.S. growth is happening in spite of the predictions of most and it is occurring in a context of widespread world weakness,” said Hall.

“This time around, U.S. growth is accelerating without the aid of additional public stimulus. Also, it's not a one-sector wonder, but a broadly-based movement. Finally, current growth is justified by basic economic fundamentals that are returning the U.S. economy to more normal activity levels.”

Although EDC believes that European weakness will scar world growth this year, acceleration in the U.S. and Japan will lift growth for the industrialized world above last year's pace, and enable emerging markets to stay their course. As a result, EDC forecasts that global growth will rise to 3.7 per cent in 2012, up marginally from 3.5 per cent in 2011. Momentum is expected to rise as the year progresses if unimpeded by major unforeseen interruptions.

Canada is expected to be more dependent on external factors to power economic growth in 2012. While EDC notes that consumers have played an important role in sustaining growth over the past three years, it expects that rising indebtedness and a stretched housing market will weigh on spending this year.

EDC predicts that while weaker commodity prices will dampen overall trade numbers in 2012, an important upside to that weakness will be to cap the Canadian dollar’s value, forecast to hover in the U.S. 98-cent range.

”The slightly lower dollar and  rising U.S. production, alongside decent emerging market growth, will power sales of higher-value Canadian exports,” added Hall. EDC forecasts that exports will grow by 6 per cent this year following an 11 per cent gain in 2011.

Primary industries are expected to be weak in the forecast, with energy exports flat, metals up just 3.2 per cent and the agri-food sector softening to only 2.7 per cent growth.

“However, in each case, weakening prices are a huge factor; volume shipments will still be growing strongly,” Hall said.

“Success is more obvious in other sectors. Higher US housing activity will help forestry exports to a 12 per cent gain, the aerospace sector is in for a 16 per cent boost, and the automotive industry can expect 21 per cent growth this year.”

“Canadian exports remain remarkably resilient. Rapid growth in sales to emerging markets is helping to compensate for weaker growth in traditional markets. It certainly doesn’t hurt that the US market finally seems to be on the mend.”

EDC’s Global Export Forecast addresses the latest global export conditions including perspectives on interest rates, exchange rates as well as export strategies to help Canadian companies minimize risk. It also analyzes a range of risks for which exporters should be prepared. Read EDC's Global Export Forecast.

EDC is Canada’s export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC’s knowledge and partnerships are used by more than 8,200 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining and a recognized leader in financial reporting and economic analysis.

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