Slowing emerging markets, weak Europe spark new global trade worries

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Canada's hopes for a sharp increase in exports face uncertainty amid new signs of a slowdown in economic growth in key global markets.

Credit rating agency Moody's Investors Service Inc. warned that China's growth in gross domestic product could decline to less than 7 per cent next year, compared with 7.3 per cent this year. That is bound to have ripple effects through the global economy, which has recently showed signs of cooling.

Meanwhile, A.P. Moller-Maersk AS of Denmark, the world's largest container shipping firm, on Tuesday said it's seeing slowing activity in China and other emerging markets, along with persistent weakness in Europe. Maersk reduced its prediction for global freight demand growth to a range of 3 to 5 per cent instead of 4 to 5 per cent for this year.

Though Moody's doesn't see a global recession on the horizon, it did warn that if China weakens more than expected, it will spell trouble.

"A protracted period of lower growth in China would affect the rest of the world by dampening trade. These effects would unfold over several years," Moody's said. "With the Chinese economy accounting for more than 15 per cent of the G20 – and more than 40 per cent of global consumption of key industrial metals – lower growth in China would quickly be felt in other countries. What originated as an acute correction in China's property sector would turn into a marked and protracted global slowdown."

While India could be a bright spot, Moody's cautioned that it doesn't envisage any significant growth spurt globally, calling for the G20 as a whole to have GDP growth of "around 3 per cent" next year and in 2016, compared with 2.8 per cent this year. Canada is forecast to have GDP growth of between 2 per cent and 3 per cent in each of the next two years.

Besides jitters over the Chinese economy, the outlook for global trade is murky because of the impact of instability in Ukraine and trade sanctions against Russia, though Europe will be hit harder than Canada and the United States, according to the rating agency.

"The growth outlook for emerging markets is mixed, with an ongoing slowdown in China, subdued growth expected to continue in Brazil and a shallow recession in Russia," the rating agency said.

Maersk has still managed to thrive financially, despite overcapacity in the shipping industry. "The operational result of the businesses is up on average about 10 per cent in a situation where rates have been under pressure and the oil price has been down compared to last year," Nils Andersen, group chief executive officer at Maersk, said in a video posted on the company's website.

Karen Ward, senior global economist at HSBC Holdings PLC, pointed out that oil prices have tumbled since June. "If oil prices are falling because of weaker global growth, this is hardly a good story for any country. Weaker demand could offset the benefit of lower costs," she said in a research note.

For Port Metro Vancouver, the country's largest port, slower-than-expected growth in the world next year would take some of the shine off a winning streak in imports and exports. Port Metro Vancouver handled a record number of containers in the first nine months of this year, and also enjoyed moving record-high cargo tonnage.

Shipments through the Port of Prince Rupert and the St. Lawrence Seaway have been robust in many categories such as grain this year. But there has been a plunge in exports of metallurgical or coking coal from Prince Rupert and a sharp drop in shipments of iron ore through the St. Lawrence Seaway. Metallurgical coal and iron ore are key ingredients in the production of steel.

"Weaker growth in China, particularly in commodity-intensive sectors like construction, is curtailing export growth globally," Moody's said. "The outlook for growth in India contrasts with the prospects of lower growth for longer in Brazil, South Africa and Russia."

Bank of Canada Governor Stephen Poloz expressed optimism last week that the U.S. economy is gaining traction, which in turn should bolster exports from Canada. "However, it is clear that our export sector is less robust than in previous cycles," Mr. Poloz said.