MONTREAL — There are signs that the world is being extricated from years of financial doldrums by the country that put it there in the first place, says an economist.
“It seems that the global economy has found its growth engine probably in the most unlikely of places — in the U.S. economy,” said Stuart Bergman, assistant chief economist with Export Development Canada.
The recovery from the recession of 2008 is a long time coming. Bergman thinks that’s because the growth cycle leading to the recession was 16 years, twice as long as usual.
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“It seems that doubling the growth cycle actually doubled the excesses that we have to work through,” he told delegates at the Canadian Special Crops Association’s annual convention.
Bergman believes the global economy is slowly emerging from recession, despite some false starts.
However, there are still risks of a return to recession because markets have become “twitchy” and tend to overreact to the slightest downturn.
“It’s the type of psychological shift that helped perpetuate the depression,” he said.
The economy is lingering in an “awkward zone” between the end of recession and the beginning of recovery. It is a sideways economy vulnerable to several factors.
Political uncertainty in the Middle East is distorting oil prices, creating higher fuel prices that could kick the legs out of the global economy.
Shrinking government spending and severely constrained credit from European banks also threaten recovery.
The faltering Greek economy is a concern, but it is not as worrisome as what’s happening in another European country.
“I would say Italy is the number one concern because the Italian government is the largest issuer of sovereign debt in the entire eurozone,” said Bergman.
“The other countries may be small enough to bail out, but Italy is not. Europe’s so-called emergency bailout fund does not have enough money in it to deal with an Italy that has gone off the rails.”
Bergman said emerging markets such as China and India lack the depth to pull the global economy out of its malaise. Fortunately the United States, which still accounts for 14 cents of every dollar in the global economy, appears to be turning the corner.
“There is good reason to believe that that economy is moving closer and closer to a point of balance,” he said.
Retail sales have been steadily rising, factories are “humming” and even the housing problem is getting under control. The U.S. worked through two million of its surplus homes last year, leaving two million remaining.
“Something is happening here, folks,” said Bergman.
“We’re seeing an economy that is slowly rising to the surface, and in doing so is generating a lot of potential for growth.”
EDC is forecasting growth of 2.6 percent in the U.S. economy in 2012 and three percent in 2013. The growth would be 3.6 and four percent, respectively, when government cost-cutting measures are taken out of the equation.
That will help offset poor growth in Western Europe, leading to total global growth figures of 3.4 percent in 2012 and 3.9 percent in 2013.
“We see a global economy that is slowly emerging from recession, that is slowly repairing itself,” he said.
Bergman cautioned that the growth numbers he used come from EDC’s spring forecast.
It is working on new numbers for the summer forecast, but the basic story is still the same.
