What a week for economic news.
TD Bank says we’ve slipped into recession. Federal finance minister Joe Oliver says we’re not. Even so, two more big banks joined TD in urging the Bank of Canada to cut interest rates next week.
Meanwhile, Chinese share prices are in free fall, having lost 30 per cent of their value since mid-June.
European stock markets are swinging wildly as they try to interpret the Greek referendum result. The Greeks said no to an austerity plan tied to more loans from the European Union.
Toronto shares have had an uneasy week, too, selling off more than 200 points Wednesday, and are now down about 1.5 per cent for the week. The Dow Jones, the best of the bunch, is pretty much flat.
After seven years of a limping recovery, many are wondering, are brighter days ahead, or are things about to get worse again.
That question was top of mind at the opening of a three-day conference sponsored by the International Economic Forum of the Americas in Toronto on Wednesday. The IEF is a not-for-profit organization based in Montreal that promotes the exchange of economic ideas.
At the opening session, one unanimous observation was that none of this volatility was predicted at the beginning of the year. Another cautious point of agreement was that yes, better things are ahead, though they will come in fits and starts and sometimes not visibly.
The big disappointment is that growth is still tepid seven years after a global recession. The U.S. economy is leading the way, though it is turning in its weakest period of growth since the Great Depression of the 1930s.
And while you can’t draw a straight line between what happens in Greece or China to our economy, those events increasingly affect us.
“It’s a world where everything is connected,” said Timothy Collins, chief executive of Ripplewood Advisors, a New York venture capital company that invests globally. “It’s the Butterfly Effect. A small thing (in one place) can have a magnified effect somewhere else. That’s the world we’re living in.”
Here’s what else was said at the opening session:
On Canada’s economy
We didn’t escape the last recession, but we did emerge relatively unscathed, said Parry Sound MP and Treasury Board secretary Tony Clement. He said that since the 2008 recession, Canada has seen the best pay gains among G7 countries for middle income earners. The ratio of our debt to economic output is half the G7 average. Our tax level is at its lowest level in 50 years.
“It’s a fragile global economy, but we have survived better than others,” Clement said.
On the global outlook
Expect low growth, high stock-market volatility, weak commodity prices and inconsistent economic performance, said Benoit Daignault, CEO of Export Development Canada, Canada’s export credit agency. Daignault said the global economy has confounded predictions in each of the last few years, and that we should expect more of the same.
Add in geopolitical tensions and things “are highly unpredictable. It’s the new normal,” Daignault said.
On short-term growth
After the 2008 crash, it was the developing economies that carried the world forward, said Joseph Hooley, CEO of State Street Corp., a worldwide financial services firm offering investment management. Now it’s the developed world that is finding its feet again as China, India and other emerging economies cool off.
“The advanced economies have stabilized, or are improving,” Hooley said. But for many it won’t seem like things are improving at all, because it will be “a grinding recovery.”
On long-term growth
The advantage will go back to emerging economies, said Simon Cooper, chief executive of Global Commercial banking at HSBC. He noted that there’s not much room to lower interest rates, so growth will come from promoting trade, which will encourage economic activity. He pointed to the Trans-Pacific Partnership as a deal that has huge potential. Twelve countries are negotiating the TPP, including Canada and the U.S.
“I remain optimistic about the probability” of a successful deal, Cooper said. “We are in a world of deflation and low interest rates. What levers does a government have left? If you believe that global trade drives growth, then the more you do that, the better.”
That really was the big lesson of the day. The world is an ever smaller, more interconnected place. That’s good and bad: Good if we swim with the rising tide and trade with the world; bad if we get bowled over by an unexpected Greek or Chinese surprise when we’re not looking.
That’s the new reality.