What changes to the global economy mean to you
by Graham Barber

The Vault

The rise of China and India as economic powerhouses has been one of the big stories in the past few years. Canadians have experienced first-hand some of the effects of these global changes - from lower prices for imported goods, to increased competition for our manufacturers to strong demand for our natural resources.

In its recent Global Outlook, 'New Age Meets Old Age', Scotia Economics looks for this economic repositioning to continue playing out in 2007 and over the longer term.

For 2007 and 2008, economic growth in North America is expected to moderate to about 2.5% and to about 2% in Europe and Japan. By way of comparison, China's economy is expected to grow by about 9% and India's economy by 8%.

Mexico, Brazil and a number of other emerging countries are also expected to exceed the performance of more mature economies.

What's in store for Canada's economy?

Consumer-spending, housing and constructionrelated activity has been strong in Canada. And the resource sector, particularly in the resource-rich provinces, has done very well. But overall, the Canadian economy has been losing some momentum, dragged down by weakness in manufacturing.

Our export-oriented manufacturing sector has been hit by two factors; a stronger Canadian dollar, which makes our goods more expensive, and intense international competition. In the past two years alone, Canada has lost 150,000 factory jobs. The automotive sector has been particularly hit hard.

On a positive note, Canadian companies have been boosting their investment in machinery and equipment to help make them more competitive. Business investment is expected to be a key factor supporting Canada's economy over the next few years.

And Canadians should continue to enjoy the benefits of low inflation, modest wage gains, and the possibility of lower interest rates later in 2007.

Canada's place in a changing world

Scotia Economics believes that the economic repositioning towards Asia and Latin America will continue, as mature economies grow older and emerging nations more youthful.

Aging populations

The developed world's population is aging. A decline in fertility rates, a widespread rise in life expectancies, and the huge cohort of baby boomers approaching their retirement years point to many challenges for Canada, such as providing health care and remedying labour shortages.

Youthful emerging markets

In contrast to maturing economies, most developing nations have much younger and more rapidly growing populations. Today, the median age in India and Mexico is only 25 - a full 13 years younger than in Canada.

By 2015, more than 16% of Canada's population will be over the age of 65. That number will be only 6% in India and 7% in Mexico.

Robust growth in the developing world

For the developed world, a longer-term shift to an older population points to moderating consumer demand.

But for the emerging industrial nations, competitive advantages such as lower wages, a huge labour pool, growing populations, and solid domestic demand could lead to strong economic growth for many years.

As skill levels and incomes increase, and the middle classes grow, this could lead to an even greater growth and wealth creation in emerging economies.

Public policy changes

To meet the challenges of an aging population and slowing growth, the developed economies will not only need to invest in health care and social services. They will also need to boost education and skills training for young and older workers alike to ensure they remain competitive in a changing economy.

The good news for Canada is that we are better suited to meet these challenges than other mature economies because of our strong fiscal position.

What do changes in the global economy mean to you? Here are a few ideas to keep in mind - today and tomorrow.

Build your retirement savings

Canadians can expect to live up to 20 years or more past the traditional retirement age of 65. That's why it's a good idea to put away as much as you can today.

For most Canadians,

the best place to save is in a registered Retirement Savings Plan (RSP). It's not only the best tax saving vehicle available, but your RSP is also a powerful financial tool that can provide you with the flexibility you may need later in life.

Diversify your total portfolio

More than two-thirds of Canadians are homeowners, and it can be tempting to think of our homes as a source of long-term wealth. But as the housing market correction in the United States shows, it's prudent to build wealth outside of your home.

Stocks and mutual funds, for example, allow you to take part in the growth of the economy and stay ahead of inflation, while bonds and GICs add stability to your total portfolio.

Invest globally

Canada represents just a small percentage of the world's investment opportunities. To take advantage of emerging opportunities and shifting demographics, it's important to have some global exposure.

In addition, Canada's market is heavily weighted in resource stocks. Although growing demand from emerging markets is positive for resources over the longer term, prices can be volatile in the short term.

The proceeding information was provided by Graham Barber, Branch Manager of Scotiabank, Alcona Branch. The Scotiabank, Alcona Branch, is located at 1161 Innisfil Beach Road, (705) 431-6116.

The Vault is a weekly series of articles provided by Graham Barber with financial advice and suggestions.