The narrative of the U.S. economy that is told in the pages of the EDC’s new global outlook is a triumph of positive incentives over negative ones.LARRY DOWNING/Reuters
Reputations in economics are made on bold predictions. Peter Hall, the chief economist at Canada's export financing agency, is seeking to make his name by betting on an unreliable source of economic growth – the United States.
In a new global economic outlook set for release on Tuesday, Mr. Hall predicts U.S. gross domestic product will expand nearly 3 per cent in 2013, an audacious call that puts him out of step with almost every other mainstream forecaster on Wall Street and Bay Street.
Consider: The average estimate for U.S. economic growth in 2013 of the 13 economists Finance Minister Jim Flaherty consults is a mere 2 per cent, a rate that is too slow to materially lower the country's unemployment rate.
The Bank of Canada, which has as much incentive as anyone to understand the dynamics of U.S. demand, foresees the world's largest economy growing 2.3 per cent next year. The International Monetary Fund's army of economists predict 2.1 per cent.
So, Mr. Hall, who leads a team of 16 economists and political risk analysts at Ottawa-based Export Development Canada, is a blind optimist, right?
Not really. In 2007, he was among the first to predict a deep slump, accurately forecasting that oil prices would plunge below $100 (U.S.) a barrel and that Canada's dollar would sink below parity.
Nor did he get sucked into the hype about fiscal stimulus, assuming the effect would be relatively short lived. Instead, Mr. Hall predicted several years of sideways growth – the "new normal" that we have been living with for the past two years.
The narrative of the U.S. economy that is told in the pages of the EDC's new global outlook is a triumph of positive incentives over negative ones.
Mr. Hall isn't preoccupied with the fiscal cliff, the combination of planned U.S. tax increases and spending cuts so large that it could trigger a recession. He is well aware of the danger: Going over the cliff would cause a global recession because the world economy would be left without an engine, he noted. But that is the main reason to assume American politicians will sort out their fiscal mess before disaster strikes. With the Nov. 6 election out of the way, political incentives in Washington will shift.
"No one wants their name to go alongside the epitaph of the world economy," Mr. Hall said in an interview from Toronto on Monday.
The U.S. housing market is coming back to life, and rising home prices should underpin stronger household spending. (Personal consumption jumped 0.8 per cent in September, according to U.S. government figures released Monday, accelerating from gains of 0.5 per cent and 0.4 per cent in August and July, respectively.)
Mr. Hall observes that U.S. industrial production is at its peak from the previous business cycle, and he predicts companies will have to add to their productive capacity to keep up with demand.
That suggests the "mountain of cash corporations are currently sitting on is just about to be unleashed into the economy," EDC says in its report. Mr. Hall estimates U.S. companies are sitting on almost $6-trillion, a number he derives from deposits at banks, cash balances of non-financial corporations and trade receivables.
That's an amount equivalent to 36 per cent of U.S. GDP. Executives need only deploy a fraction of their reserves to jolt the U.S. economy out of its current malaise.
It's been a long time since anyone has said "3 per cent" and "U.S. economy" in the same breath. Doing so now surely will be met with some derision. But those who called the housing bust also were derided, and today they're feted as economic seers.
The U.S. economy will turn eventually. By seeing through the cynicism about Washington, perhaps Mr. Hall has placed himself among the first to see that the turn is happening now.