Following a temporary hiatus in late 2012, there are clear indications the overall health of the global economy is starting to improve.
This view is supported by a number of forward looking economic reports, the most current of which was just released by the Organization for Economic Co-operation and Development (OECD). In their Interim Assessment titled, What is the near term global economic outlook?, Pier Carlo Padoan, OECD Deputy Secretary-General and Chief Economist, notes that although the global economy weakened again in the final quarter of 2012, there are clear signs economic activity in many major economies is starting to improve.
The improved outlook hinges to a significant extent on the steady pickup in U.S. economic activity since the beginning of the year and is conditional on that economy continuing to expand at a moderate pace through the remainder of the year.
With respect to Europe, consistent with the recent decline in the Eurozone Manufacturing Purchasing Managers’ Index (PMI), the most recent analysis by the OECD and the comments by Mario Draghi, President of the European Central Bank, following its Interest Rate Announcement, the sustained recovery in the region is likely to take somewhat longer.
However, in line with evidence of strengthening manufacturing in China contributing to that nation’s GDP increase of 8%-plus, the organization noted that the pace of economic activity in emerging economies, which now accounts for a much larger share of global output than in the past,
will continue to make the largest contribution to world growth.
Turning to the prospects for world trade, the OECD notes that, after losing momentum through much of 2012 in sync with a slowdown in growth among the major advanced economies, the effects of an improvement in OECD output combined with sustained growth among non-OECD countries should cause the volume of world trade to gradually gain strength.
Moreover, this prospect is consistent with the solid 1.9% increase in the volume of merchandise world trade reported by the CPB Netherlands Bureau of Economic Policy Analysis in January.
In summary, although the OECD is still very concerned about the prospects for Europe, it is more sanguine about the health of the U.S. economy given the steady improvement in housing demand, strengthening consumer confidence and improving capital spending plans.
Given that the U.S. is, by far, Canada’s major foreign market, it is only a question of time before the tailwind of stronger U.S. growth gives a significant boost to growth in Canada.
Volume of World Trade vs OECD Composite Leading Indicator