A reviving American economy should lift the rest of the world and spark food demand
CALGARY — A turnaround in the U.S. economy is giving the global economy the wings it needs to finally rise above the lingering recession.
“The world economy is getting back on its feet again and is actually ready to fly,” said Peter Hall, chief economist with Export Development Canada.
The pending revival of the global economy is good news for Canadian farmers, who sell their products around the world.
There were unprecedented surpluses of production and consumption prior to the recession of 2008-09.
“We had a mountain of global excesses, more stuff than anybody needed,” he said during a presentation at the Pulse & Special Crops Convention.
Six years later, the U.S. economy has worked its way through the excesses and is experiencing the reverse scenario, in which there is significant pent-up demand.
That is the spark required to ignite the global engine, said Hall.
The most visible sign of the pent-up demand is in the housing market. There is a need for about 1.9 million new houses a year in the United States, but contractors are building only 1.1 million.
“That need is coming back like a tidal wave,” he said.
“Every month they are building a bigger deficit of housing need.”
There is also significant under-consumption in the U.S., a country where consumption comprises 70 percent of the economy.
That is happening at a time when employment is picking up, wages are growing and consumer confidence is on the rise.
“(U.S. consumers) were very gloomy for about five or six years. That’s very un-American. They’re now back on their feet again and they’re starting to spend.”
The problem is that the industrial capacity has maxed out. It is back to pre-recession levels of 80 percent capacity, which is as high as it gets.
“This is the point at which U.S. growth starts to spill into the rest of the world in a very big way, and the increase in the U.S. currency is actually aiding this,” said Hall.
He believes it has already poured over into the European Union, where consumer and industrial confidence indicators are high despite challenges in Greece and conflict in Russia and Ukraine.
There are signs of pent-up demand in the EU, where a housing deficit is also developing.
The U.S. and the EU are each re-sponsible for 17 percent of global gross domestic product, so it is only a matter of time before the revival of those economies spills over into emerging markets.
“This is not something that’s two or three years out as far as we’re concerned. This is a this-year thing,” said Hall.
China has been filling a void in the trade side of its economy with an unprecedented government stimulus program.
About 13 percent of China’s GDP during the recession came from stimulus compared to 3.9 percent on average for the Organization for Economic Co-operation and Development countries.
Hall believes trade is coming back to China, which will have a spillover effect because China has invested in manufacturing in other countries in the region.
The weak Canadian dollar is another bonus for exporters. Hall expects the dollar to trade at US82 cents for the remainder of this year and 84 cents next year.