The US is a beacon of hope in an otherwise dull global economy

Highlights

• After a tepid first half of 2015, the global economy seems to be picking up speed thanks to better growth in the OECD, the latter led by a resurgent US. In sharp contrast, emerging economies seem to be struggling to adapt to the new world of sub-7% growth in China. Making matters worse is the growing risk of disorderly deleveraging in emerging markets where the sizable amount of USD-denominated debt has become harder to service after the dollar’s surge. That’s the major downside risk to our forecast for the global economy to grow 3.5% in 2016.

• The US is a beacon of hope in an otherwise dull global economy. While the outlook for its exporters isn’t great considering the appreciating dollar and weak world growth, domestic demand remains rock solid. A strong labour market is fueling consumption growth while investment spending is picking up as corporations attempt to boost productivity. We continue to expect the world’s largest economy to post above-potential growth of around 2.5% this year and next. But given current uncertainties, including a fragile global economy and the possibility of a government shutdown in the US, the Fed may want to wait until at least December to start a new tightening cycle.

• If Canada was ever in recession in the first half of 2015 it seems to have come out of it in the third quarter. A resurgent US is providing a lift to exporters and hence Canada’s economy. A much-depreciated C$ is making Canadian goods more competitive abroad and giving a helping hand to services industries such as tourism. Still, despite an expected second half rebound, real GDP growth should be no better than 1.3% in 2015 courtesy of a disastrous start of the year. Don’t expect a significantly better performance in 2016 unless Ottawa delivers much-needed fiscal stimulus to address the decline in the economy’s potential.

•  Download Full Monthly Economic Monitor