U.S. is global engine | Japan, Asia Pacific adding to the momentum
Glen Hodgson was pumped to deliver the keynote presentation at CropSphere 2014.
“I have a good news story to tell about the global economy for the first time in probably five years,” said the chief economist of the Conference Board of Canada.
The world economy has been languishing since the financial crisis of 2007-08, when the U.S. housing market crashed and banks around the world imploded.
“It has been really tough, but I’m here to tell you that we’re finally turning the corner,” said Hodgson.
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The main positive factor is the rebounding U.S. economy, projected to grow by three percent this year, up from less than two percent last year.
“They’re back to normal five years after the financial crisis,” he said.
The United States is still the biggest economy in the world and has a big influence on the health of the global economy.
Hodgson thought the turnaround would happen last year, but the U.S. Congress got in the way by constantly bickering over the budget, which “sucked the life” out of consumer confidence and discouraged businesses from investing in their operations.
Confidence has returned now that Congress has hashed out a two-year budget agreement announced in December.
The U.S. Federal Reserve’s quantitative easing program successfully stimulated the economy by injecting it with money through the purchase of government bonds.
Quantitative easing has also fueled a turnaround in Japan’s economy. The conference board is forecasting two percent growth in real gross domestic product for that country.
“Japan is finally kind of the half good news story for the first time in 20 years,” said Hodgson.
The European Union economy, after two straight years of recession, is forecast to grow by nearly one percent this year.
The big growth continues to be in emerging markets in the Asia Pacific region. The region is expected to grow by 6.5 percent if Japan is excluded. It is good news for Canadian agriculture, which conducts a lot of business in that part of the world.
Hodgson expects the Canadian economy to grow 2.4 percent, up from a tepid 1.7 percent last year.
Growth could hit 2.7 percent if the Canadian dollar remains around 90 cents US for the rest of the year. A weak dollar is good for export-oriented industries such as agriculture.
“I think there is probably more chance of (the dollar) going up than down,” he said.
One bad news story for the Canadian economy is the amount of personal debt consumers have amassed. Canada ranks No. 3 in the world for personal debt load behind the Netherlands and South Korea.
“We’re in the highest level of personal indebtedness ever in Canada’s history,” said Hodgson.
Higher interest rates would spell trouble for many people. However, he doesn’t expect short-term rates will rise much above today’s ultra low levels for the next couple of years.
“If ever you have to refinance debt, now is the time to do it. You will never see the price of money cheaper than right now,” he told farmers.
There could be an increase coming for long-term rates, such as the 10-year mortgage rate.
A labour shortage, especially in Saskatchewan and Alberta, will also hold back growth in Canada, he added.
