The global economy may “turn a corner” next year with improvements in the U.S. and Europe, according to Avery Shenfeld, CIBC World Markets chief economist.
World growth may accelerate to more than 4 percent in 2014, as euro zone countries and the U.S. benefit from reduced “drag” of fiscal policies aimed at reducing debt, Shenfeld told investors at the Bloomberg Focus Day Symposium in Toronto. U.S. growth will quicken to 3.2 percent from 1.5 percent this year and Canada to 2.3 percent from 1.7 percent, he said.
“The U.S. economy can indeed turn a corner more dramatically in 2014,” he said, citing the agreement to end the government shutdown and avoid default and a decline in the unemployment rate. “We have really been waiting a long time to go from mediocre to really good economic times,” he said.
Shenfeld’s forecast contrasts with the International Monetary Fund, which cut its global growth estimate to 3.6 percent next year from 3.8 percent on Oct. 8 because of weakness in emerging markets. Stocks in that region plunged after the U.S. Federal Reserve signaled in May it may trim extraordinary asset purchases, and Shenfeld said the Fed will not raise interest rates until early 2015.
The Fed “doesn’t want to raise interest rates in a hurry,” Shenfeld said. “We know they were uncomfortable with how fast bond yields were rising” after policy makers spoke about tapering asset purchases, he said.
Janet Yellen, who has been nominated to replace Ben S. Bernanke as Fed Chairman, will be a “clone” of her predecessor, said Shenfeld, who predicts 10-year Treasury bond yields may rise to just above 3 percent next year.
In Europe, most countries will be able to make “less dramatic” moves to curb debts next year, Shenfeld said. In China, signs of rising imports suggest healthy domestic demand that may in turn benefit Canada, he said.
“We aren’t looking for Canada to outperform,” Shenfeld said. “We have pretty much used up some of what the U.S. has just started to get in some sectors like housing.”
Bank of Canada Governor Stephen Poloz has said that record consumer debt burdens through a housing boom are the biggest risk to the domestic economy, and he has also said that “patience” is needed before business investment and exports pick up the slack.
Canada doesn’t have a housing debt “crisis” Shenfeld said. Poloz will probably wait until early 2015 to raise the 1 percent policy rate, he said. The average forecast of economists surveyed this month by Bloomberg is for the first increase to take place in the fourth quarter of 2014.
“When it comes time to tap on the brakes,” he said, ‘it’s not going to take as much’’ to slow the economy.
Business investment “has slowed dramatically” in Canada, Shenfeld said. The country’s oil producers are scaling back spending because of lower prices and questions over delays in approving new pipelines.
“It’s not exciting times for launching new mega-projects in Canada’s oil patch,” he said.
Canada can still expect to benefit from stronger global growth and the conditions to end the central bank’s longest rate pause since the 1950s “may finally fall into place” next year, he said. Stronger global growth and a modest rise in interest rates suggest the best returns in Canada’s stock market will be for companies in the base metals, air transport and insurance industries, he said.
“Better times are coming -- stronger growth finally in the U.S. and global economies and an ok year for Canada on the back of better global growth,” he said.