Emerging markets to lead global growth

Despite a weak economic recovery and lacklustre job growth, Canada remains one of the best countries in a world beset by slower growth and political uncertainty.

Globally, the new normal is slower growth, Warren Jestin, senior vice president and chief economist, Scotiabank told an audience at the Scotiabank 2013-1014 Economic and Market Outlook Conference, Wednesday morning.

“The overall economic growth in the world will be centred in the commodities producing regions,” he said. “The growth momentum in our country very much reflects what we’re seeing in the new world, [but at the current] level we’re still living in one of the best countries in the world.”

Read: Consumers carry Canada as growth stalls

Admitting Canada’s growth remains modest, he asserted it is still much better than in Europe and some other parts of the world, especially the U.S.

But the trend is slowing, warned Jestin.

“In absolute terms, our housing market is in better shape, [but] as the U.S. market improves, we’re likely to see the U.S. economy slightly outperform Canada over the next year or two,” he said.

“Of course, it’s not a hard race to win” but the U.S. appears to be poised for leading the G-7 countries, added Jestin.

On a global level, though, the bulk of growth continues to come from the emerging world.

“The dominant growth partners are in Asia,” he said. “[Growth in] China has been disappointing to many people [but at] 7.5% or 8%, it’s still very strong when you consider growth prospects in Canada, the U.S., Japan and Europe.”

Similarly, growth has been declining in other emerging economies including India, Russia, Peru, Chile and Columbia but remains “at a multiple of what can be expected, in good years and bad, in the industrialized world.”

The game in the manufacturing sectors has changed, too. While the North American auto sector is improving, most of the investment is going to other parts of the world.

“The real game is being played in the emerging world,” said Jestin. “China, for example, is the largest car market in the world – bigger than the NAFTA market combined. And with market penetration still relatively low, we will find investment decisions favouring those markets.”

Read: Canada’s cooling housing market not all bad

Countries like China have gone from low-cost suppliers of exports to North America to consumers and market opportunities, he added.

As a result, these economies have become less reliant on prospects in Europe or the U.S. and more dependent on internal growth and growth within the emerging space.

Against this backdrop, it’s reassuring to know that Canada will continue to attract fund flows as investors look for safe haven in an environment of protracted volatility.

“Canada’s relatively better fiscal position provides a strategic advantage important for longer-term growth and prosperity,” said Jestin. “Our world-class financial system also supports growth at a time when banking crises in many countries have impeded economic revitalization.”

As for the loonie, it’s expected to close above parity both in 2013 and 2014, said Camilla Sutton, chief currency strategist at Scotia Capital.

“The single most important factor driving our view is relative monetary policy,” she said. “Entering 2013, the U.S. Federal Reserve is expected to expand its quantitative easing program again.”

There’s historic evidence that the Canadian dollar appreciates during periods of quantitative easing, said Sutton, adding that there is no reason why it won’t happen again.

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