Markets not all doom and gloom, says federal economist

There’s a lot of silver lining those black clouds.

That was the tenor of Peter Hall, chief economist of Export Development Canada, in his spring 2019 export market outlook session.

If some of the gloom in today’s markets lifts, shining prospects for continued economic growth and greater demand lie ahead.

“In our view, (the world economy) is actually fundamentally strong,” he said June 11.

“The twin engines of the world economy are not in pre-recession.”

Many analysts say the world’s economy is slowing down, the bond market is signalling a recession coming soon and trade wars are exacerbating an already poor 2019-20 outlook.

“There are a lot of reasons to be worried,” acknowledged Hall.

But he said much of that pall may soon lift. The trade friction between many countries right now, and the trade war between the United States and China, are likely to be alleviated as world leaders move from posturing and rhetoric toward shoring up their economies with new trading agreements and deals.

“We keep expecting it for the same logical reasons,” said Hall.

If trade tensions wane, investment capital could be unplugged.

“They’re breathing a whole lot easier (if there’s a resolution),” Hall said.

Capital investment has been restrained for years, never recovering since the Great Recession of 2007-09. That has helped create tepid growth and weak markets. But if investment managers relax, a flood of investment capital could propel the world’s economies forward.

“We’re seeing this pullback that has affected growth, and I believe it’s unnecessary,” said Hall.

“I look out into the world and I see lots and lots and lots of opportunity.”

While many analysts believe the U.S. and world economies are in “late cycle” stages, near a recessionary stumble, Hall said the U.S. housing market suggests that is not the case. Almost all expansions contain a strongly growing housing industry, but the U.S. industry has never bounced back from 2007-09.

“We’re not even back to the replacement rate” for housing in the U.S., Hall said. That means there is lots of room for the U.S. economy to grow if the housing sector finally recovers and “pent-up demand” drives economic growth.

“It’s sort of an anti-bubble (right now),” said Hall.

“Both on housing and investment we see a lot of potential.”

He has a generally bearish view on commodities, believing investors have boosted their values as they have sought better returns than were available in bonds and other investments, but that pessimism does not extend to agricultural commodities.

While most commodities will have “very tame” price increases in coming years, agrifood will probably see an “exponential rise” of demand.

“It’s really the inexorable rise of the emerging markets middle class,” he said.

Key among those emerging markets is China, which Hall sees as still holding great potential for Canadian exporters, despite today’s diplomatic crisis.

“China is going to be our top customer in the world” in 25 to 50 years, said Hall.

“We can’t take our eyes off China.”

And countries like India and Indonesia also offer golden opportunities.

Hall’s view of the Canadian domestic economy is much grimmer. He sees Canada dealing with a housing and personal debt bubble and “bubbles don’t generally deflate. They tend to burst.”

If housing or debt cause Canada’s economy to stumble, the export markets will be the best bet for Canadian producers and manufacturers.

“On the domestic side, we really aren’t very strong,” said Hall.

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