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Global economy

The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.

The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.

After three years of little or no growth, Canadian export sales are poised to grow by four per cent next year, according to the latest global export forecast released by Export Development Canada (EDC). "Canadian exporting companies have faced three tough years in a row but there are now signs that the global economy is back on track," says EDC vice- president and chief economist Stephen Poloz. "Our view is that 2004 will be the first synchronized growth year for the world economy since 1996, the last time economic conditions were as close as possible to how we define normal." Economic activity is now strengthening in the U.S. and prospects for much of the developing world are also improving. EDC forecasts world economic growth of 3.9 per cent next year, up from 3.1 per cent expected for this year. Canada's economy is expected to grow by 3.4 per cent next year, building on the 2.2 per cent growth estimated for this year. While the value of energy exports will ease next year as prices gradually often, non-energy exports should see a solid revival, led by agri-food, commodities and other key resource sectors such as forestry products, chemicals, plastics, fertilizers, ores and metals. Other growth categories will include machinery and equipment, engineering services and consumer goods. Conditions will remain soft for the aerospace and auto sectors. Service exports should see much better growth across all sectors, including tourism, transportation and commercial services. See 'Back' P.# Con't from P.# Spearheading the recovery are the economies of non-Japan Asia, which together now make up about one quarter of the world economy. Canadian export sales to Asia will grow in 2004 on average by 13 per cent, boosted in part by both higher commodity prices and volumes. Investment spending in North America will contribute significantly to an above average expansion. The U.S. economy is expected to see growth of about four per cent in 2004, although a drop in energy prices and moderate growth in auto exports will hold Canadian export sales growth to three per cent. Western Europe will see a modest recovery but will continue to lag the other major economies with growth of around two per cent and Canadian export sales to markets within this region should grow between five and ten per cent. Central Europe and Russia will emerge as key growth regions and Canadian exports are expected to increase by nine per cent. Next year will be a rebuilding year for South America and Canadian exporters should see growth of more than 20 per cent. The risks to EDC's forecast include lingering geopolitical tensions, concerns over trade protectionism and the lack of employment growth in the U.S. which could all turn the recovery into another detour. Says Poloz: "Our belief is that slow global economic growth and high uncertainty are contributing to the negative atmosphere, with the implication that the brightening outlook for 2004 should foster more productive international relations." If, as Poloz suggests, most economies return to normal, exchange rates should also stabilize and interest rates will rise. All signs suggest this will be gradual, and will not begin until mid-2004 at the earliest. This should be seen as an indication that business conditions are returning to full health. The Canadian dollar should stabilize in a range of between 73 to 75 cents US over the next 12 to 18 months, provided that the rest of the world returns to normal as well. As such, exchange rate forecasts will depend more on such fundamentals as productivity growth and commodity price movements - elements likely to be modestly positive for the Canadian dollar over the next few years. The dollar has already drifted up to the mid-70s and a temporary overshoot into the high 70s is likely to be temporary. "The world is back on track, and a return to normal business conditions is unfolding," adds Poloz. "But the road will remain a bumpy one - normality is being redefined along the way, and its new defining characteristic is volatility."