Peter Hall is brimming with optimism about the global economic outlook largely because of what’s happening south of the 49th parallel.
The United States is still the driver of the world economy, the chief economist of Export Development Canada said, and there are compelling signs it has turned the corner and pulled itself out of the recession that began with the global economic meltdown of 2008.
Consumers account for 70 percent of U.S. economic activity, and they are in good shape, he said .
“The consumer in the United States has an absolute job juggernaut going on,” he said.
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Job creation has been “long and strong.”
April job creation missed expectations but the unemployment rate remains at five percent, half of where it was during the height of the recession.
“Real wages are growing in a way that they have not grown in the last seven to eight years,” said Hall.
Falling gasoline prices have put an additional US$110 billion in the pockets of U.S. consumers and will add another $50 to $60 billion this year.
As well, Americans have made great strides in reducing personal debt.
“Americans have become un-American in the last little while in a very key way. They saved most of that. Imagine,” said Hall.
As a result, there is a lot of pent-up purchasing power for a group of consumers that account for 11 to 12 cents of every dollar spent in the global economy.
The U.S. is not alone.
Western Europe’s economy has grown above its potential rate of growth in each of the last six quarters. The region is about two years behind the U.S. in its recovery process, but there is an “extraordinary” amount of pent-up consumer demand ready to be unleashed.
China’s economy was built on trade, but that collapsed in 2008. The trade-to-gross domestic product (GDP) ratio plummeted to less than 15 percent after the global economic meltdown from almost 70 percent.
“That’s a full blown crisis,” said Hall.
The Chinese government responded with an “eye-popping” annual financial stimulus program amounting to 13 percent of GDP compared to an average of 3.9 percent for Organization for Economic and Co-operative Development countries.
China is waiting for global trade to return to the glory days. In the meantime, the government is attempting to nudge China into becoming more of a domestic consumer-driven economy.
It is trying to convince people to stop saving so much. The average Chinese consumer socks away 40 percent of each cheque compared to about five percent for the average Canadian.
China’s GDP would increase by eight percent for every one percent reduction in savings.
India’s economy is growing by 7.3 percent per year and shows no signs of slowing down, Hall said.
“India is on a roll,” he added.
He was even optimistic about Russia and Brazil, two large but struggling economies.
Russia is in financial trouble brought on by economic sanctions, low oil prices and the high cost of waging wars in Ukraine and Syria.
Hall said no political leader can withstand a prolonged economic downturn without doing something radical, so EDC is preparing for Russian president Vladimir Putin to open up the economy.
A similar situation could happen in Brazil, where the government is in the midst of a corruption scandal and the president could face impeachment.
Add it all up and Hall is optimistic about the global economy, which he told his Saskatoon audience is good news for Saskatchewan’s export-dependant economy.
EDC forecasts eight percent growth in Saskatchewan’s exports next year, up from a three percent contraction this year.
The province’s agri-food exports are expected to expand by six percent next year, up from a three percent increase this year.
“Saskatchewan’s oilseeds and pulses exports will remain very strong over the next two years due to a lower Canadian dollar, higher prices and continued demand from emerging markets,” Hall said in a news release announcing the Saskatchewan estimates.
