Global economy moves from West to East

[SOO MAAL]

Global economy moves from West to East

 

Eric Beauchesne

CanWest News Service

 

 

Wednesday, July 19, 2006

 

 

 

CREDIT: Getty Images

Many investors choose to spread the geographical risk of their overall equity portfolio by investing roughly one-third in Canada, one-third in the U.S., and one-third internationally, in burgeoning economies such as China.

 

OTTAWA - Globally, the engine of economic growth is shifting to the emerging economies of Asia from western industrial nations, a major Canadian bank says.

 

At the same time, Canada is now being driven by the resource-rich West instead of the industrial heartland in Ontario, Scotiabank says in a sweeping economic report entitled Trading Places.

 

Over the past decade, Asian economies, led by China and India, havebeen taking over the role as generators of global economic growth from the industrial world. Canada, as a supplier of natural resources, will benefit from the global shift, which has also resulted in a shift in the domestic economy.

 

''A seismic shift in the global economic landscape has occurred since the mid-1990s,'' it said.

 

The report was issued Monday as China reported its economy this past spring had expanded by a steamy 11.3 per cent from a year earlier, news that is expected to put pressure on China to raise interest rates and revalue its currency further to slow growth.

 

Asia, excluding Japan, now accounts for 30 per cent of world gross domestic product _up from just under 25 per cent a decade earlier _while the Group of Seven major industrial nations, including Canada, represent just 41 per cent, a shift of six percentage points from a decade ago, said bank chief economist Warren Jestin.

 

That increase in the share of the global economy accounted for by emerging Asian nations is also reflected in an increase in their share of global trade to 23 per cent _up from 19 per cent 10 years ago. China is now the largest exporter of non-energy products to the U.S., and the second largest exporter overall, after Canada.

 

Energy sales give Canada continued bragging rights as top overall supplier, Jestin noted.

 

''Commodity producers in Canada will continue to benefit from burgeoning demand from emerging nations as well as an increasing U.S. market reliance on imported energy,'' the report forecast. ''Markets for uranium, natural gas, copper, zinc, nickel and iron ore also are expected to remain buoyant.''

 

On balance, however, it predicted that growth in the G-7 nations will be ''tempered'' by slow population growth, aging populations, mature domestic markets, and intense competition from offshore producers.

 

Also, there is little pent-up demand left for big-ticket purchases or housing in the G-7 nations, and creeping inflationary pressures are nudging interest rates higher, it said. Further, with the exception of Canada, budget deficits limit government pro-growth initiatives, and constrain pro-growth initiatives.

 

''In this environment, G-7 growth is poised to soften and will likely gravitate towards three per cent in North America and a percentage point lower in Europe and Japan through 2010,''it forecast.

 

While Canada's natural resources sector, and on balance the country as a whole, has and will continue to do well, its manufacturing sector has been struggling to adjust to the strong dollar, higher energy costs, and increased competition from offshore producers, especially China and India.

 

As a result, the share of Canadian exports that are commodities has already increased 6.5 points since the mid-1990s to 43 per cent, reducing the share of manufacturing exports to 57 per cent.

 

And the squeeze on manufacturers, as well as Canada's tourism industry, will increase, the report suggested, forecasting the loonie will rise back up to the low-90-cent US range by the end of 2007.

 

While the Canadian economy will likely grow by close to three per cent over the next two years, the growth will be far from balanced, it said.

 

''Economic leadership has rotated to Alberta, British Columbia, and other resource-rich regions, and will likely stay there through the remainder of the decade,'' it forecast. ''While Canada's new-found resource wealth will add to the buoyancy in other regions, the pace of activity in Ontario, Quebec and much of Atlantic Canada will tend to lag the national average.''