Here at the breakfast session of GrainWorld the Royal Bank of Canada’s assistant chief economist, Paul Ferley, is giving the big world economic outlook, with a particular focus on the Asia-Pacific region.
His bank is predicting “sustained, though gradual, growth” for the world economy.
What are the big worries for RBC?
1) Global “imbalances;” From currency valuation problems to inflationary problems overseas versus slow and sluggish economic performance in the U.S. and Europe, widely varying situations are unsettling the world economy.
2) Geo-political shocks: look at what’s going on in the Middle East; think about other bad things that could happen that no-one’s expecting.
Ferley said RBC is more concerned about number two in that short list.
A big danger to the general situation of strong and rising commodity prices is inflation in emerging economies, like China. If inflation gets out of hand in China and the government there needs to act very aggressively to snuff out inflation, then commodity prices would suffer. Much of the confidence in high commodity prices relies on continued economic growth in Asia.
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Ferley said he thinks the U.S. dollar will continue to be strong in world terms, but the Canadian dollar will likely stay close to parity. However, if inflation gets out of control overseas, commodity prices could surge and the Canadian dollar could rise to $1.10. But then emergency fiscal tightening would likely strangle economic growth and knock down commodity prices, and knock the Canadian dollar back down beneath parity.
