When considering the global economy, you have to distinguish between the U.S. and rest of the world.
So says Benjamin Tal, managing director and deputy chief economist at CIBC World Markets.
The U.S. is chugging along, with its consumer sector and housing market “doing extremely well,” he adds. “I believe this trajectory will continue because the [housing] recovery is…market driven. It’s being driven by fundamentals as opposed to” being supported by government easing.
Tal predicts the U.S. economy will surprise on the upside in the second half of 2013 and into 2014. However, he says “although…consumer [and] housing are doing well, we’re starting from a very low base, and…the fiscal situation is acting as a negative.”
The rest of the global economy is lagging behind, he says, with “the Eurozone clearly in recession territory. That will be the case for a while. China is [also] slowing down, mainly because [it] wants to slow down.”
Tal finds the new leadership in China is concerned about the possibility of a credit bubble, so officials are making it much more difficult to lend. This is weighing on the domestic economy in the region.
Tal predicts that Canada will underperform the U.S. in 2013 and possibly 2014. And that’s because of the domestic economy.
He says, “In the U.S., the consumer is basically starving with a lot of pent up demand. We don’t see the same thing in Canada…In fact, this was the only recession ever that wasn’t led by the consumer [and] the only recession…that didn’t see credit going down.”
In fact, “credit expanded at a significant rate, so…we don’t have the same pent up demand,” adds Tal. “That’s why we see consumer activity slowing down despite almost 0% retail inflation.”
As a result, consumer activity won’t lead Canada’s recovery cycle. Instead, Tal says “we need to see an improving global economy that will inject some momentum into our export sector and that will be the main driver of growth.”
We’ll benefit from exports coming from the recovering U.S., as well as by momentum in major economies like Europe and China.