LEVIS, QC, June 18 /CNW Telbec/ - The worst of the economic and financial
storm seems to be over! It caused a lot of damage as it blew through and we
will have to clean up, repair and rebuild before life can get back to normal.
It is therefore hard to picture a recovery as lively as what we've been used
to. That is the conclusion that Desjardins Group's economists reached in their
latest economic forecasts, released today.
"Activity sectors such as finance, real estate, the auto industry and
forestry have been slammed. It will take time to put all the pieces back
together. Although we will reach bottom in the fall of 2009, we will have to
wait until at least the fall of 2010 before production gets back to
pre-recession levels and a true expansion phase begins," stated Mr. François
Dupuis, Desjardins Group Vice-President and Chief Economist.
Recovery uneven across Canada
Québec, which went into recession at the end of 2008, is doing somewhat
better than Ontario and western Canada. It is not very dependent on the auto
sector and less focused on raw materials, so the province is holding up better
under the deterioration in the global economic situation. The increase in
public investment, that began well before the recession did, is also helping
Québec to get through this landmark period. "Although the damage is not as bad
in Québec as elsewhere, the recession is still fairly severe, as shown by
February's 1.1% drop in the real GDP," asserted Mr. Yves St-Maurice, Director
and Deputy Chief Economist at Desjardins Group.
Although the structural wreckage is not as bad in Canada, the country is
still highly dependent on its neighbour to the south. The housing market did
not slide as much as its American counterpart, while the banking system had an
easier time getting through the liquidity crunch. On the other hand, the
plunge by oil prices had substantial negative wealth effects in some regions,
exports plummeted and the auto sector's future is still grim. It is clear that
Canada's economy will recover slowly, at a pace similar to the American
economy. Canada's real GDP will fall 2.6% in 2009 and then climb 1.7% in 2010.
The provinces' economies will develop unevenly, according to their
industrial structure. The western provinces and Newfoundland and Labrador are
more affected by blips in energy prices. Alberta, which saw its output
contract in 2008 after oil prices dropped, will see its real GDP decline by
2.8 % this year and post a rebound of 2.5% in 2010.
Ontario, which is closely tied to the United States and the auto
industry, will see production decline 3.4% in 2009, and then come back by just
1.3% in 2010. This contrasts with the results for Québec, which will post a
contraction of 1.7% in 2009, followed by growth of 1.4% in 2010. Currently,
Québec's different economic structure is giving it an edge. British Columbia
will stand out in 2010 with its real GDP up by 3.0%, a direct result of
staging the 2010 Winter Olympics.
The global recovery must bank on the United States
After enduring a brutal 1.7% plunge in 2009, the world's economy will
post growth of 2.5% in 2010; the IMF considers 3% to indicate a recessionary
environment worldwide. The growth forecast for industrialized countries is
only 1.1% in 2010; for developing nations, it is 3.9%.
Also according to Desjardins' economists, the United States will be the
trigger for the global recovery. "It is at the heart of the world's commercial
and financial trade and it will take more than one recession to change this
fact. It is therefore unlikely that the planet's economy will emerge from a
recession separate from the United States, especially as commercial trade
between nations has exploded in the last few decades," they noted.
The American economy is slowly heading toward a fall recovery, but it
will not be dazzling: a real GDP increase of 1.4% for 2010 after a forecast
decline of 3% in 2009.
Structural problems should not be underestimated
The markets' recent euphoria is largely based on the hope of seeing
economic growth bounce in the new few months. However, the hope seems just as
exaggerated as the pessimism that swept the planet last fall, which called for
an inevitable 30s-style depression. "Spikes in the stock market, oil prices,
the Canadian dollar and interest rates should not continue; the next few
months will be calmer and there is even a chance of a correction this summer,"
declared Mr. Dupuis. He believes it will only be toward the fall, when the
foundations of the economic recovery have gelled, that markets could see a
second surge in optimism, mitigated by the persistent fundamental structural
problems in the U.S. and, at certain levels, the global economies.
The crises-mortgage crisis, liquidity crunch and economic crisis-we have
been through have left deep wounds. The U.S. and European housing markets have
been laid waste and the imbalance remains. The global financial system is in a
long period of convalescence and financial institutions' balance sheets are
still contaminated by toxic assets. Simultaneously, losses on loans are
mounting, adding to the problems. Automakers are collapsing, not only in the
United States, but around the world. It will take time, patience and a lot of
sacrifices to rebuild a prosperous auto industry that is more in line with the
new sustainable development objectives. Closer to home, the forestry sector
and any industry that revolves around it, like lumber and pulp and paper, are
"In this context, it will be hard for the recovery to be dazzling," added
Mr. St-Maurice. However, enthusiasm will be back at year's end, driving oil
prices to around US$78/barrel, after a potential temporary correction this
summer. Prices should hold at this level on average for next year. As a
result, the S&P/TSX should show an increase of about 20% for the year, while
the S&P500 will be up 8%. Next year, returns will be 11% and 14% respectively.
Oil prices will continue to influence the Canadian dollar, which will hold
around US$0.90 until the end of the year, reaching parity in the second half
Can central banks relax?
"On this point, the answer is clear: No! On the contrary, they must keep
up their work", stated Mr. Dupuis. The international financial system is still
very fragile and calls for great vigilance from monetary authorities. In the
United States, as the Federal Reserve cannot take any further action on key
rates, it will have to continue with and even expand its quantitative policy
to encourage the recovery and keep the economy from abruptly falling back.
Given the movement by the bond market, the Fed will therefore continue with
its program to purchase federal bonds.
The Bank of Canada, for its part, is keeping an eye on how economic
indicators are moving before taking non-traditional action which, for now,
would be astonishing. "However, the most important thing is to reassure
markets that the central banks are prepared to respond to any upheaval
promptly," concluded Desjardins' economists.
To find out more, consult the <a href="http://www.desjardins.com/en/a_propos/etudes_economiques/previsions/financieres_trimestrielles/">Economic and Financial Outlook, Summer
2009, Economic Studies</a>
es_trimestrielles/</a>), Desjardins Group at www.desjardins.com.
About Desjardins Group
Desjardins Group is the largest cooperative financial group in Canada,
and the eighth largest in the world, with overall assets of close to $160
billion. Drawing on the strength of its caisse network in Québec and Ontario,
as well as its subsidiaries, several of which are active throughout Canada,
Desjardins offers a full range of financial products and services to its 5.8
million individual and business members and clients. Desjardins Group is also
home to a wealth of expertise in property and casualty insurance, life and
health insurance, wealth management, services for businesses of all sizes,
securities brokerage, venture capital, asset management and secure
leading-edge virtual access methods, all part of an integrated offer that is
the only one of its kind in Canada. One of the largest employers in the
country, Desjardins is backed by the knowledge and skills of its 42,000
employees and the commitment of its 6,300 elected officers. To find out more,
For further information:
For further information: for journalists only: Hélène Lavoie, Advisor,
Information and Media Relations, (514) 281-7275, 1-866-866-7000, ext. 7275;
François Dupuis, Vice-president and Chief Economist, (514) 281-7000, ext.
7322, 1-866-866-7000, ext. 7322; Yves St-Maurice, Director and Deputy Chief
Economist, (514) 281-7000, ext. 7009, 1-866-866-7000, ext. 7009