Export Development Canada official highlights key challenges facing the world, from U.S. spending to global instability
While 2024 wrapped up with a lot of anticipation, 2025 looks increasingly uncertain.
That was the message from Ross Prusakowski, deputy chief economist with Export Development Canada, during the Canadian Soybean Harvest Update held late last month.
Much of his presentation focused on the U.S. economy and its substantial global influence, the impacts of geopolitics and what the new year might bring.
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“In the U.S. (and globally), inflation has eased, but consumer confidence is still struggling,” he said, pointing to increased consumer spending as a key driver of the U.S. economy.
Much like Canadians, American consumers built up a significant amount of savings during the pandemic, thanks to stimulus programs, government transfers and the fact that they didn’t have opportunities to purchase items due to limited supplies.
The U.S. consumer uptick in spending since the pandemic has continued and is extending to an increase in consumer borrowing to make those purchases.
However, Prusakowski said that although they continue to spend, consumers in the U.S. and in many other countries are still referencing prices that were in place before the pandemic, which is where the disconnect and lack of consumer confidence becomes apparent.
“Despite their pessimism, the U.S. continues to spend, and when you factor in their stable labour market, their economy is robust,” said Prusakowski.
However, that’s not the case for the rest of the world.
“Here in Canada, consumers have become quite pessimistic in terms of their outlook on the economy, and rather than spending their savings, Canadians have been sitting on them and saying they are going to wait to see what happens,” he said.
Mexico is feeling uncertain, too, but for very different reasons. Political and policy changes following the country’s elections resulted in its currency and stock market prices sliding.
Looking outside of North America, Prusakowski said geopolitical challenges also plague other countries.
For example, Germany was once the industrial powerhouse of the European Union but has been suffering since Russia invaded Ukraine in 2022.
At that time, Germany lost access to its inexpensive natural gas energy source, a key foundational input, and the result has been a plunge in factory orders and industrial production.
He pointed to recent announcements from Volkswagen and other industrial companies as signs the German manufacturing industry and overall economy is struggling because of layoffs of tens of thousands of workers.
“In Europe, the German growth engine is sputtering, and overall EU growth has slowed,” said Prusakowski.
The anticipated 2025 German election will be one to watch, he added, because the current German government has been unable to manage debt provisions and increase government spending to support the economy.
Prusakowski said he is also keeping a close eye on France, another key driver of the EU economy that is struggling with government instability, resulting in economic challenges.
“What we’re seeing heading into 2025 is that the outlook in both Germany and France is weak governance and weak economic activity.”
A global outlook wouldn’t be complete without a look at China, one of the largest global economies. Prusakowski said that country is having its own growth challenges and feeling the continued impact of the troubled property market, which is continuing to hold back consumer and business confidence.
“China’s property market is undercutting the country’s growth,” he said, explaining that deflation is the key issue facing the country’s economy.
In China, buyers are holding out on investing in property because the prices continue to decline, and they are waiting for prices to go down further before purchasing.
And while these domestic challenges continue, China has been relying on exports as their source of economic growth.
“Of course, the challenge is that China’s exports have been leading to conflict with other countries,” said Prusakowski, pointing to the U.S. and the recent trade tensions it has had with China.
Anti-dumping duties have also been imposed by Europe and Canada as well as other markets on goods such as electric vehicles, steel and aluminum to ensure China isn’t trying to use exports to power its own growth.
“This is a tricky challenge for China because it needs to balance the growth to offset some internal economic weaknesses.”
When it comes to the challenges facing the 2025 global trade environment, Prusakowski circled back to the U.S., focusing on U.S. president Donald Trump and his proposed tariffs.
“The possibility of U.S. tariffs will likely present a number of potential challenges between trading partners, especially its North American peers — Canada and Mexico,” he said.
Trump’s campaign promises have already introduced a significant amount of uncertainty into the global economy. Prusakowski pointed to the strengthening U.S. dollar and new lows in the Canadian dollar and Mexican pesos.
He predicted these tensions will continue to put pressure on monetary policies and central banks worldwide, which are already having to balance potential impacts of tariffs against weakening currencies and slowing domestic economies.
“We can also expect currency volatility to be much higher if there is an implementation of U.S. tariffs.”
In the short term, the potential for tariffs is already driving more imports to the U.S., and Prusakowski said ports along the U.S. west coast were seeing some of the largest shipping volumes ever as companies try to build up inventories ahead of any potential tariff impacts.
Overall, the global economic outlook for 2025 remains unpredictable and at the mercy of governments, especially the U.S. government.
“Over the horizon loom challenges for trade and the global economy, and it appears that geopolitics are in the driver’s seat,” said Prusakowski.
