OTTAWA — The global economy could be headed for a “modest revival” in trade and economic growth, despite concerns over weak commodity prices that have derailed growth in resources-dependent countries such as Canada.
The Organization for Economic Co-operation and Development, in a report released Monday, said that while growth prospects overall “have clouded this year,” many countries are implementing policies “to address the weak underlying trends.”
“Despite these growth weaknesses and financial vulnerabilities, the OECD’s projections . . . . show a modest revival of both world trade and GDP growth.”
In Canada, where the global collapse of oil prices led to a temporary recession, policy measures have mainly taken the form of monetary easing — along with a promise from the new government in Ottawa to crank up fiscal spending, primarily in infrastructure projects.
The OECD expects Canadian interest rates will start rising “in late 2016,” as economic growth in Canada
The drop in energy investment should begin to diminish in 2016, with non-energy exports picking up and business investment increasing, according to the OECD, an 18-nation group promoting economic and social policies.
The Paris-based OECD expects Canadian interest rates will start rising “in late 2016,” as economic growth in Canada reaches 2.3 per cent in 2017. That’s below the Bank of Canada’s forecast of 2.5 per cent for the same year, which would follow an anticipated advance of two per cent in 2016 — the same forecast as the OECD.
For this year, the central bank expects growth of 1.1 per cent following two initial quarterly contractions.
Meanwhile, the OECD is predicting overall output among its members to reach 2.3 per cent in 2017. The United States should grow by 2.4 per cent in that same year, with the euro zone rising slightly to 1.7 per cent and China slowing to 6.2 per cent in 2017.
Nevertheless, the OECD said “a further sharp slowdown in emerging market economies is weighing on global activity and trade, and subdued investment and productivity growth is checking the momentum of the recovery in the advanced economies.”
“There are increasing signs that the anticipated path of potential output may fail to materialize in many economies, requiring a reassessment of monetary and fiscal policy strategies.”
The OECD added that “business investment remains subdued” among member nations, “raising questions about future potential growth rates.”
Those are all issues facing fiscal and monetary policymakers in Canada, where the economy began losing momentum at the end of 2014 and slipped into a brief recession in the first half of 2015 — the effect of the global collapse in oil that first appeared more than a year ago and cut prices in half. Crude remains depressed at around US$45 a barrel.
Action by the Bank of Canada — two quarter-point cuts in its key lending rate so far this year, taking the base level to 0.5 per cent — has been credited with cushioning the economic impact of the energy crisis.
As well, the new federal Liberal government was elected Oct. 19 on a fiscal-policy pledge to run annual deficits of as much as $10 billion over the next few years to pay for infrastructure programs. (The OECD report does not address the recent change of government nor its policies.)
Canadian businesses, meanwhile, have been criticized for not spending enough to expand production and widen their trade net since the 2008-09 recession. That has been compounded by the oil crunch, which forced oil companies to cut back on investment and reduce operations and staff and also cut into government revenues.
But the OECD said “the drag from falling energy investment should fade away by early 2016, while non-energy exports (will) lead the subsequent pick-up, with business investment following.”
“As economic slack is taken up through 2016, inflation should increase to above the two-per-cent midpoint of the Bank of Canada’s inflation target range in 2017.”
OECD expects the central bank’s first hike in lending rates to come “in late 2016” and “be gradual after that.”
That outlook is roughly in line with forecasts by private-sector economists.