The global economy is recovering faster that expected, according to Douglas Porter, Chief Economist and Managing Director of Canadian investment bank, BMO Financial Group. He told the International Mining and Resources Conference last week that increased global demand for goods was positive news for the mining sector.

Copper and gold should do well out of the global recovery, according to Canadian banker, Douglas Porter.  Credit: Pixabay

While the world economy has just been through the deepest downturn since World War II, Douglas Porter said the subsequent recovery has been ‘stronger and faster than many had expected when we were in the deepest part of the downturn.

‘We have seen a particularly forceful recovery in areas like consumer spending.’

Porter argued that the COVID-19 downturn had been ‘wildly different’ than most previous economic downturns and this difference would dictate the nature of the recovery, and which industries would benefit most from it.

‘Normally, services sectors are very stable during a downturn and they offset weakness in the goods sector. That didn’t happen this time. It was the services sector that was really hit because of the inability [of people] to closely congregate.

‘Copper has actually benefited over the past year. Gold has made a roaring comeback.’

‘The upside for the mining industry is that we have actually seen the goods sector come back a lot quicker than it normally would.

BMO Financial Group’s Douglas Porter

‘Spending has been channelled into things like electronics, vehicles, housing, real estate – that is where the preponderance of spending has been. Things like global trade and industrial production have not been as damaged as you would normally expect in such a deep downturn.

‘The good news is that there has been a number of commodities that have fared remarkably well during this very harsh hit. Copper has actually benefited over the past year. Gold has made a roaring comeback. There are a number of commodities that have held up remarkably well, given the devastation in the global economy.

‘Looking out next year, we are going to see some differentiation between the metals. We favour copper a bit more than the industrial metals, and aluminium on the weaker side.’

Positive outlook

While he described the short-term economic outlook as ‘negative’ he was more positive for the medium term.

‘When we get 12-to-18 months out, I think we will see that, in some respects, it has actually improved [on current forecasts].’

Porter said the Canadian investment bank, which includes the Bank of Montreal, expects the global economy to contract by four per cent this year, followed by a 5.5 per cent bounce back in 2021.

‘To put that into perspective: in a normal year, we would be looking at about 3 to 3.5 per cent global growth. I think the big picture is that we are not going to completely make up this year’s losses next year; the unemployment rate will still be higher in the developed world.

‘But we will still be a long way back to recovery, specifically for the mining industry.’

Porter said some industries have been left out of the recovery, however, especially those ‘where distancing has been a real challenge.’

He pointed to the entertainment industry and the travel industry, which he said have been operating at ‘maybe 40 per cent of capacity in the best of situations’.