Second-Half Softening Tests World Economy, according to EDC forecast

OTTAWA, July 15 /CNW Telbec/ - The global economic recovery is slowing, but all indications are the softening is temporary, according to Export Development Canada's (EDC) Summer 2010 Global Export Forecast.

"Hopes were high that the worldwide outpouring of fiscal and monetary stimulus would bridge the economy to a sustainable recovery. But the impact of the stimulus is waning, and certain key sectors of the economy have yet to see a rebound," said EDC Chief Economist Peter Hall.

" This suggests that the recovery in the world economy's true core has yet to occur. What we are now entering is a mid-rebound softening that should be temporary, but it will test our collective nerves for a few months."

Mr. Hall's Summer Forecast points out the key risks to the budding global economic rebound that he first identified in EDC's Spring Forecast have begun to materialize in what he calls "the critical zone".

EDC's Summer 2010 Forecast calls for world growth to reach 4 per cent this year, noting that the pace is welcome relief from the 0.6 per cent contraction of 2009. However, the forecast contends that the improved numbers are largely due to aggressive growth that is now behind us and still relatively weak when compared with past recovery periods. The softening in the second half of 2010 is also expected to show up in next year's numbers, keeping growth for 2011 at 4.1 per cent.

"The pressure is rising. Slower growth is etched all over current data, dampening the bullish mood that dominated the airwaves in the first quarter. Markets are in yet another turbulent phase as we move into the post-stimulus phase of the rebound, perhaps the trickiest period in the past two years."

EDC's forecast notes a growing agreement that broadly-based softening in the second half of this year is inevitable. The forecast does not expect Canada to buck the trend, with a combination of international and domestic factors suggesting slower second-half performance.

"The bottom line is that growth is softening, and initially, markets aren't taking the news well," said Mr. Hall. "But there are good reasons for the slowing, and good reasons to believe it will be temporary. Simply put, today's weakness is working down yesterday's excesses, and setting us up for a return to growth tomorrow."

Dimmer global growth prospects are expected to lower commodity prices further in the second half of the year, weighing the loonie down to the US $0.92 level. The weaker currency will give Canadian exporters some relief, but softening demand conditions at home and abroad will restrain growth for the remainder of this year. Canada is forecast to see growth reach 3 per cent this year before easing to 2.5 per cent in 2011. Canadian export growth will follow this pattern, slowing from 11 per cent this year to 6 per cent in 2011.

"Will we keep our nerve over the slow months?" asked Mr Hall. "As long as there are no shocks, we should be alright, but given the experience of the past few weeks, that is far from guaranteed. Weaker sovereign states may cause ripples as they go to market to roll over large blocks of maturing debt. Sub-par growth in key emerging markets would likely rattle markets. Negative news from financial institutions could also be disruptive."

EDC is Canada's export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC's knowledge and partnerships are used by more than 8,400 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining, a recognized leader in financial reporting and economic analysis, and has been recognized as one of Canada's Top 100 Employers for nine consecutive years.

For further information: Media contacts: Phil Taylor, Export Development Canada, Tel: [phone], Blackberry: [email protected]