This summer marks the third anniversary of the economic recovery that began following the 2008 global financial crisis and the recession that descended upon much of the world in its wake.

By any measure it has been a subdued economic rebound, particularly for many of the “advanced” countries that belong to the Organization for Economic Co-operation and Development (OECD).

Although a few OECD countries, including Canada and the U.S., have seen output surpass the prerecession peak, most have yet to reattain their pre-2008 levels of gross domestic product. This is the situation in the U.K., Japan, and most of continental Europe.

A little more than half way through 2012, the signs point to both a faltering global economy and a deteriorating near-term picture in North America. In recent weeks the Bank of Canada, the International Monetary Fund and a handful of private forecasters have all trimmed their economic projections for 2012 and 2013.

In the Eurozone — consisting of 17 European nations that have adopted a single currency and central bank — GDP growth is close to zero, reflecting positive but low growth in the “northern” members like Germany, France and the Netherlands, offset by declining economic activity across “southern” Europe. The U.K. — which, technically, is not part of the Eurozone — is also in or flirting with a double-dip recession.

A glance at the daily headlines shows the Eurozone mired in a serious economic crisis that features ever-widening performance gaps between “core” and “peripheral” members, inadequately capitalized banks, a general drying up of credit, and sky-high government borrowing costs for countries such as Spain, Italy, Greece and Portugal.

As the peripheral European countries implement fiscal consolidation programs intended to reduce interest rates and enable their governments to again access bond markets on tolerable terms, their economies are contracting. A number of these nations face difficult fiscal and economic adjustments that will stretch over several years. Whether they will remain members of the common currency zone is unclear. But in the short-term, the economic and financial problems in Europe are sure to depress growth in the region and to act as an unwelcome headwind for the global economy as a whole.

Turning to the United States, the positive economic news that characterized the early months of the year has given way to a less promising scenario. While U.S. housing markets appear to be stabilizing and balance sheets are in good shape across much of corporate America, job creation has decelerated and most readings of business and consumer confidence point to widespread pessimism.

The number of Americans classified as “employed” is still five million below where it stood in 2007, causing some economists to argue that the long-admired U.S. jobs engine has broken down. Canada, by contrast, has enjoyed a relatively healthy labour market, albeit employment growth has slowed noticeably in 2012.

Recently, the U.S. has seen both exports and manufacturing shipments take a hit, owing to the slump in Europe and a rise in the value of the dollar relative to many other currencies. Of particular concern, given that consumers drive 70 per cent of economywide spending, is that June was the third consecutive month of falling retail sales. U.S. consumers remain cautious, and it’s not hard to understand why. Apart from a sluggish job market, American households have suffered an unprecedented decline in their net worth, with median wealth — the wealth of the household in the middle of the wealth distribution — dropping by an astonishing 39 per cent between 2007 and 2010. At the heart of this wealth shock was a steep fall in housing prices across much of the country. Today, almost one-quarter of American homeowners with mortgages find themselves with “negative equity” in what, for most, is their single most important asset.

All in all, it’s now prudent to scale back the outlook for Canada’s economy, as global risks and uncertainties intensify and the domestic factors — such as buoyant housing markets, solid job gains, and government-engineered fiscal stimulus — that have helped to support our economy since mid-2009 peter out or shift into reverse.

In today’s world, Canada can count itself fortunate if it manages to eke out annual GDP gains of two per cent over 2012-13.

guelphmercury.com