Scotia Economics reports the Global Economy is Transitioning from Recession to Recovery



    TORONTO, June 4 /CNW/ - In their monthly Global Forecast Update entitled
Rebooting Growth released today, Scotia Economics has raised their projections
indicating that the global economy is on the verge of crossing over from
recession to recovery.
    "Although the restructuring and retrenchment underway in a number of key
sectors and regions will remain a significant drag on the pace of activity,
strong cyclical forces are providing much-needed impetus to growth," said
Warren Jestin, Chief Economist, Scotiabank. "Canada and many other countries
around the world are expected to piggyback on the renewed momentum being
generated by the globe's primary economic engines, the United States and
China. The recovery should become increasingly more broadly based, with the
likelihood of accelerating economic gains through the balance of this year
extending into 2010."
    Canada's economy should be buoyed by strengthening demand in the United
States and internationally for manufactured and commodity-related products,
although the nation's performance will likely lag the upturn because of
competitive issues, including a stronger currency.
    According to the report, even with the globe's output growth turning
positive in the second half of the year, the contraction in worldwide real GDP
in 2009 is still likely to average 2.7 per cent, a post-war record. But
building upon the strengthening economic momentum, global output growth is now
expected to average 2.6 per cent in 2010, at roughly half-percentage point
higher than our previous forecast.
    "Throughout much of the developed world, and in the United States in
particular, the recovery will be marked by the comparatively large
contribution to growth provided by the government sector," said Aron Gampel,
Deputy Chief Economist. "Outside of the quarterly volatility triggered by the
large adjustments to inventories, output gains will be far from robust, as the
private sector will be constrained by household deleveraging, industrial
restructuring, and a more cautious banking sector. Canada's performance should
roughly match the sub-par U.S. recovery, though the composition of growth will
largely reflect the stepped up demand for resources by emerging markets, as
well as gradually improving domestic demand."
    The report states that China will continue to be the global growth
leader, with the stimulus provided by expansionary fiscal and credit policies
and improving international trade boosting economic prospects this year and
next upwardly revised real GDP advances of about seven per cent and nine per
cent respectively. However, the largest upward revision to growth occurs in
the United States, where we now expect the rapidly changing growth dynamics to
produce a 2.8 per cent average advance in 2010, a full percentage point higher
than our prior forecast and reversing this year's anticipated 2.6 per cent
decline.
    A number of factors, both fundamental and market-oriented, reinforce
Scotia Economics' view that the global economy has reached an important
turning point:

    
    -  Policymakers around the world appear to have been relatively
       successful in erecting the firewalls and creating the credit market
       conditions needed to contain the global financial crisis.

    -  Economic forces appear to be working. Sizeable price discounting,
       alongside comparatively lower energy costs this year, is helping to
       recharge purchasing power and spending, particularly in more credit-
       sensitive developed economies.

    -  An unprecedented period of inventory liquidation around the world is
       rapidly winding down. While the reduced pace of destocking in the
       current quarter is helping to limit the contraction in overall output,
       even a relatively modest addition to inventories in the second half of
       the year will provide a solid boost to output growth.

    -  Central banks have unleashed a powerful wave of stimulus by
       inoculating most countries with historically large and quick monetary
       injections.

    -  Governments are actively ramping up fiscal measures to support hard
       hit sectors and regions, and promote renewed economic growth through
       large increases in new spending and tax incentives.

    -  Many financial market indicators, such as the stock market, commodity
       markets, currency markets and the bond markets are also in turnaround
       mode, suggesting a higher degree of investor confidence that the
       economic and financial sector downdrafts are behind us.
    

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.





For further information:

For further information: Warren Jestin, Scotia Economics, (416)
866-4733, warren_jestin@scotiacapital.com; Aron Gampel, Scotia Economics,
(416) 866-6259, aron_gampel@scotiacapital.com; or Paula Cufre, Scotiabank
Public Affairs, (416) 933-1093, paula_cufre@scotiacapital.com


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