Better export climate forecast by EDC

The global economy and the climate for Canadian exports both stand to be better over the next couple of years than many analysts expect, as long as nervousness and fear don't get in the way, a new forecast from Canada's export-financing agency suggests.

Using Depression-era economist John Maynard Keynes's famous term "animal spirits" to describe how the bumpy recovery of the past two years has made investors, consumers and executives so nervous about the future that their fear and inertia risks undermining the rebound, the forecast by Export Development Canada urges all to focus on the positive.

"Animal spirits pose a huge threat to short-term global growth," Peter Hall, chief economist at Export Development Canada, says in the forecast, released Monday. "Our research suggests that rising momentum in key leading sectors, and the healing process that is definitely under way, will bring the global economy into a greater state of balance by the latter half of 2012."

EDC's forecast is somewhat more optimistic than most, including one released last week by the Bank of Canada, which cut its projections for both years and said Europe's debt woes, the grinding U.S. rebound and a slowdown in China would limit Canada's prospects.

Canada's gross domestic product will rise by 2.3 per cent this year and 2.4 per cent in 2012, EDC said, as sales abroad increase by 12 per cent this year and 7 per cent in 2012. (The central bank predicts the economy will grow 2.1 per cent this year, and 1.9 per cent in 2012.)

The global economy will see growth of 3.7 per cent this year and 4.3 per cent in 2012, EDC said.

As has been the case throughout the recovery from the world's worst downturn since the Great Depression, emerging markets like China and India will lead the charge, expanding 5.9 per cent in each of those years. The developed world will grow 1.6 per cent this year, but 2.6 per cent in 2012 as a resurgent U.S. economy expands by a healthy 3.3 per cent and as reconstruction in disaster-ravaged Japan helps the country rebound from this year's sharp contraction.

The gradual improvement in the global economy will benefit all Canadian exporters, EDC said, but there will be "significant variation" among industries.

Unfilled orders in the aerospace industry will translate into a 22-per cent surge next year in exports of aircraft and parts, EDC said, and forestry exports will grow 17 per cent in 2012 as demand from China "breathes new life" into the industry, which has been battered by weakness in the U.S. housing market.

At the same time, energy exports are seeing a 20-per cent gain this year on higher prices linked to booming demand in Asia and turmoil in the Middle East and North Africa, but won't register any increase in 2012, with prices and demand both taking a big step back. And EDC forecasts just 3-per cent growth this year and next for exports of consumer goods.

Still, Mr. Hall said he is encouraged by steady growth in unfilled orders, which he said runs across all industrial sectors.

"That means they're either in production now or it's future production that we're going to be doing, so that's money in the bank, if you like," he said, adding that the stream of negative headlines in recent weeks has driven a "wedge" between perception and reality.

"There's a huge disconnect right now between perception and production," he said. "If you look at indicators of business sentiment right around the world -- particularly the Western world -- they're going south in a hurry, but if you look at the pace of orders growth in factories, pick your country and it's going by double digits almost everywhere."