Prices are rising at a faster rate than we’ve seen in almost 40 years. Waved off at first as a temporary problem, central banks are tackling this head-on with tighter monetary policy. Expectations are now aligned around the fast tapering of quantitative easing programs, earlier and more rapid interest rate increases, and possible balance sheet reductions. This has financial markets and consumers braced for imminently tighter access to financing. A risk to the outlook is that current demand-led price growth moves into wage and other contract settlements, which will be harder for central banks to neutralize or reverse without more stringent monetary action.
Fiscal policy is also likely to become more stringent. This won’t be just in Canada; almost every Organisation for Economic Co-operation and Development (OECD) nation will be in the same fix. Pandemic stimulus has caused debt to balloon well beyond previously acceptable limits and governments everywhere will be under pressure to roll back stimulus and get their finances on a more sustainable trajectory before higher interest costs exacerbate the problem. Thankfully, they’ll be able to do this at a moment of economic strength, which will at least help on the revenue side.
International trade is generally benefiting from a strong world economy and consequently, Canada experienced surging growth in the dying months of 2021. Pent-up demand will power trade activity through 2022 and 2023, especially as supply chain constraints begin to diminish toward mid-year. Protectionism, in its many overt and more subtle forms, is expected to gradually give way to strong demand conditions. There’s definitely enough activity for everyone for at least the next two to three years.
This all adds up to impressive forecast numbers. Developed markets are projected to grow well above their long-term trend, collectively rising by 4.1% this year and by 3% in 2023. Likewise, emerging markets will see impressive growth in the wake of last year’s rebound, together expanding by 5.3% in 2022 and a further 5% next year. This puts 2022 global growth at a robust 4.8%, which will then moderate to a still-high 4.3% for 2023.
Demand conditions will keep commodity prices higher than initially expected and definitely higher than sustainable levels in the long term. The price of West Texas Intermediate crude oil is projected to average US$71 this year and US$65 in 2023. Gas prices will follow the same pattern, coming off current highs as Western European supplies are replenished. Copper prices will face continued upward pressure owing to immediate supply constraints, and increased structural demand as a result of higher global resolve to shift from fossil fuels to cleaner, copper-intensive forms of energy generation and transportation. Copper prices are projected to average US$8,997 this year, edging down slightly to US$8,287 in 2023.
Higher commodity prices are putting upward pressure on the Canadian dollar, although that’s being offset somewhat by shifts in expectations for monetary policy movements here and elsewhere. The Bank of Canada was initially more hawkish in its policy actions, boosting the loonie’s value against the U.S. dollar and the euro. But with the Federal Reserve and the European Central Bank now messaging tighter monetary actions, the Canadian dollar has eased back and is now expected to average US$0.79 this year and US$0.80 in 2023.
The bottom line?
Pandemic-fuelled uncertainty created broad expectations of a sluggish recovery. In contrast, growth is booming. Caught by surprise, global business is scrambling to ramp up production to meet demand. Supply chains, normally fine-tuned to perfection, are a mess, but will soon pull themselves back together. Inflation, perhaps the clearest signal of the economy’s strength, will moderate as central banks swing into action. At the same time, the effects of the Omicron variant threaten to delay the economy’s progress—and perhaps create space to better prepare for the inevitable upswing in activity. It’s all a bit chaotic, but the core story is a good one: There are clear rewards for those who are more prepared to deliver the goods over the next two years. Check out EDC Economics’ latest Global Economic Outlook and discover more valuable insights.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
