The 10th annual HWY H2O conference, held November 19 and 20 in Toronto, examined trends driving cargo growth opportunities along the St. Lawrence Seaway.
Aron Gampel, VP and Deputy Chief Economist at Scotiabank, commented on the global economy, saying “The economic models don’t work anymore. We’re forced to use them and adjust them but they don’t provide all the answers in a very complicated world, so we’re forced to forecast often.”
Gampel said that financial market volatility is in, and stability is out.
“After a prolonged period financial markets were just going one way: up. In the last couple of months we’ve had a period of tremendous volatility-the markets can go up, down and sideways. Global growth will be generally slow but steady, with periods of strength followed by periods of weakness. The end result is we really don’t have enough aggregate demand to sustain global economic growth. Economies like Canada’s will just see moderate growth. Structural issues, like debt and demographics, will keep us slow for the foreseeable future,” he said.
Gampel said that Canada would have to rely more strongly on trade to offset weakening economic demand. He said a 7% rise in export volumes is expected next year, but imports will be slower going forward.
Geopolitical risks in the international context will continue to impact world economies, “raising a level of uncertainty and volatility and undermining confidence.”
“We’re in the sixth year of a recovery-the slowest recovery in the post WWII era. It’s sluggish largely because it’s concentrated in the advanced economies which were ground zero for the recession.
This time around the problem was a debt buildup in the advanced economies and the ensuing repercussions. Reducing these high levels of debt keeps the advance economies in the slow lane. Everyone suffers the aftershocks and is in different stages of recovery mode,” he said.
Addressing prospects for the Seaway’s major partners, Europe and the US, Gampel said that Europe is undergoing short term stimulus, but faces long term austerity.
The US is also employing short-term stimulus mechanisms but has left long term debt for future governments. The issue wasn’t as problematic the last few years but now as the US economy is starting to revive the performance difference between the US and the EURO is creating tremendous pressures.
“The US is winning the growth war for the time being. The problem in Europe is not the peripheral economies but the big economies that are dragging down the economy. At a time when the US is begin to wean off its ultra low interest rate environment, we need to see more policy accommodation, not just because the Europeans are tough but that the global environment is so slow. The decline in oil prices means cash flow improvements, but you don’t want to see them go too low and hurt oil producing nations, like Canada, Mexico and the US. currencies. We have to see the adjustments factor through in helping economies, but you can’t allow them to go too far-they’ll have much more implications for the global financial market,” he said.
From a Canadian perspective, “we are still quite optimistic about the outlook because we see the economy coming back and coming back much stronger. The balance sheets have been turned around. The US economy is in a much better position to generate self-perpetuating momentum. Canada has been diversifying its markets in trade deals with Europe, South Korea, and the Trans Pacific Partnership. Many countries are moving toward bilateral relationships. With Canada being so diversified there are tremendous markets for minerals, agriculture, foods, etc. The Europeans are looking to Canada as a resource provider, understanding that Russia may not be the best long term bet. Europe will get its act together. It will get the powers needed to generate stronger growth going forward. In Europe, many of the peripheral countries have gone through a five year period where they tried to improve their own competitiveness.
While you don’t have a lot of domestic demand they have been trying to increase sales internationally.
Eastern Europe and Asia Pacific markets are not as bright as they once were. Everyone is going to be focusing on the US market,” Gampel said.