The Euro sculpture in front of the headquarters of the European Central Bank (ECB) in FrankfurtJOHN MACDOUGALL
Patti Croft is recently retired as chief economist, RBC Global Asset Management, with 30 years of experience on Bay Street working as an economist and global asset allocation strategist.
Lost in the midst of the focus on the recent G20 meetings was the release of third quarter data for the troubled euro zone economy. Eurosclerosis was a term coined in the early 1980s to describe a region saddled with rigid labour markets and high unemployment yielding weak economic growth.
Since then, reforms have improved the potential growth rate for this region, but in the aftermath of the credit and economic crises of the past two years, this term may be revived to describe the plight of the euro zone region, with taxpayers in countries like Germany and France on the hook for unravelling debt crises in Ireland and Greece.
Despite dramatic easing of fiscal and monetary policy, growth in the euro zone region slumped to 0.4 per cent in the third quarter, less than half the rate posted in Q2. Divergence in growth remains large, with Germany leading the way while Greece is floundering. But even growth in Germany was lacklustre, rising 0.7 per cent, compared to a surge in growth in the second quarter that saw the economy jump by 2.3 per cent, the strongest quarterly growth since reunification in 1990. At the other end of the spectrum was Greece, whose economy contracted by 1.1 per cent, the ninth consecutive quarter of negative growth.
The challenges facing the euro zone region are not unique. We are at a critical crossroads for the world economy. While the world has recovered from the deep synchronous recession of two years ago, growth to date has been largely policy driven. It is time to hand the baton from government to the private sector, but for most developed economies the outstretched handoff remains elusive.
We live in a world of fire and ice. The ice age is upon the U.S., Europe, the U.K. and Japan -- as they struggle to rein in massive budgetary shortfalls, the end result is weak growth, high unemployment, fears of deflation and growing protectionist tendencies. Meanwhile China's inflation rate stands at a two-year high, with new tightening of policy to dampen growth and speculation -- particularly in the property market.
Where does Canada stand? Canada is caught in the middle. The ice age encompassing the U.S. economy has a direct impact on our small open economy, given our close economic ties. But strength in countries such as China and India will benefit our nation. Meanwhile, our fiscal challenge is sizeable, but manageable. The end result is that Canada remains a bastion of stability in a world fraught with uncertainty - I continue to believe that one implication of this is further significant strength in value of the Canadian dollar.