In the Valley

(Export Development Canada – Peter G. Hall)

Like it or not, that’s where the world economy is at present. Six months of freefall down a pretty sheer cliff, and everyone’s still a bit dazed, wondering if this is a V-, a U- or an unusually W-shaped valley. Spirits rose when the freefall ended, but that seems to be giving way to the realization that the trek out of the valley will be prolonged and hazardous. What is the near-term outlook for the economy?

Activity may well have stabilized, but forecasts are still falling. In part, this is catch-up; the economy simply fell further than was expected. But it also reflects the uncertainty of the coming months. EDC’s outlook for the global economy was already weak, but the Summer 2009 Global Export Forecast has been revised downward. We now expect that the world economy will contract this year by 1.7%. To put this in context, normally a world economy in recession would actually see growth of between 1% and 2.5%. The projected contraction is the weakest outcome the planet has seen in six decades.

If there’s good news in the shocking decline, it’s that global commerce is actually working off the huge excesses that piled up in the boom years. The bad news? The pile was so high that we still have a way to go before balance is restored. Plotting a course through this delicate ‘in-between’ zone is tricky. Activity is lower, so cash is tight. Low demand is pummelling prices. It is much more difficult to access capital. Commerce is more tentative, and is expected to remain this way well into 2010. Read more here.