It will be harder than forecast to get back to normal, according to Desjardins Group economists

The financial markets work on their patience

LÉVIS, QC, Dec. 20, 2012 /CNW Telbec/ - According to the Desjardins Group Economic Studies team, international financial markets are still sensitive to any unexpected event. The relative equilibrium that had materialized over the last few months proved quite fragile. "The fiscal cliff saga in the United States should wrap up soon, removing a major source of uncertainty. The extent of the impact on North America's economy and the reaction from the markets will depend on the outcome," stated François Dupuis, Desjardins Group Vice-President and Chief Economist.

Canada losing steam
Canada's economy is increasingly feeling the impact of the weakness in global demand and movement by exports provides firm evidence of this trend. What's more, we have a public sector that is in austerity mode and a housing market that is going into a slowdown. Employment's good performance could have positive impacts on household income and consumption, despite their high debt loads. "Businesses should continue to invest to deal with low productivity, but some could also lose enthusiasm as a result of weak demand for their products," emphasizes Yves St-Maurice, Senior Director and Deputy Chief Economist at Desjardins Group.

The current environment is less favourable to Canada's economy. Canada's real GDP should rise by 2.0% in 2012 and 1.8% in 2013, and then close in on potential in 2014 with growth of 2.5%. Commodities, especially oil, remain a major driver for Canada's economy, largely explaining the regional disparities. Western provinces will once again be the best performers in 2013 and 2014. They will get a boost from a WTI (West Texas Intermediate) price that should be US$96/barrel and US$104/barrel at the end of 2013 and 2014 respectively.

The context in Quebec and Ontario will remain tough, as these provinces do not benefit as much from the presence of energy commodities. Their manufacturing sectors, heavily focused on international merchandise trade, will continue to hurt for a few more quarters due to negative impacts of the U.S. fiscal cliff and the recession in the euro zone. The Canadian dollar will gradually undergo upside pressures and could hit US$1.05 towards the end of 2014. On the other hand, the loonie's relative strength should encourage businesses to keep investing to improve sometimes lacklustre productivity.

In Quebec, we can expect real GDP to grow by 1.4% in 2013. Ontario should feel the backlash from the big surge in automotive production in 2012, showing real GDP growth of just 1.7% in 2013. Both provinces will also be affected by the slowing real estate market, governments' planned spending cuts, and repairs to household balance sheets. Economic growth will climb to 2.2% in Quebec and to 2.3 % in Ontario in 2014, helped by the global recovery, especially in the United States.

Longer than expected in Europe
The recession will persist longer than forecast in the euro zone, although it will remain fairly slight. The euro zone will only return to positive growth in 2014, with real GDP growth forecast to be 0.6%. 2013 should see a 0.4% contraction. Concerns about China's economy have somewhat eased because the latest indicators are showing slight signs of an upswing. With real GDP growth of 5.1% in 2013 compared with 4.6% in 2012, emerging nations will allow the global economy to post slightly higher growth in 2013, at 3.3%.

Unsurprisingly, issues surrounding the fiscal cliff and the debt ceiling are monopolizing the attention in the United States. The tension could rise as the end of the year closes in. After rising 2.2% in 2012, the U.S. economy's growth could retreat to 2.0% in 2013, attenuated by the outcome of the current negotiations. "Growth should accelerate subsequently, going to 2.8% in 2014, boosted by a recovery by the real estate market, consumption and business investment", added Mr. Dupuis.

Reason to hope for further good stock market returns
North America's stock markets should benefit from a better situation in mid-2013 and 2014. The returns will be better than those expected from the bond market, with its more limited potential for appreciation. Failing a solid economic recovery and due to the elevated risks of a skid, central banks will continue to be expansionary. "The Bank of Canada will also make sure the recovery is well underway before it goes into action, and this should not be confirmed until mid-2014", concluded Desjardins Group economists.

For more information, consult the most recent study at the following address:

About Desjardins Group
Desjardins Group is the leading cooperative financial group in Canada with assets of nearly $200 billion. Drawing on the strength of its caisse network in Québec and Ontario and its subsidiaries across Canada, it offers a full range of financial products and services to its 5.6 million members and clients. Desjardins specializes in Wealth Management and Life and Health Insurance, in Property and Casualty Insurance, in Personal Services, in Business and Institutional Services. Best Corporate Citizen in Canada for 2012 and among Canada's Top 100 Employers, Desjardins is supported by the skills of its 44,645 employees and the commitment of nearly 5,400 elected officers. A new education and cooperation program is now available to Desjardins members and the general public. For more information, visit

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For further information:

(for journalists only)

Francine BlackBurn
Media Relations Advisor
514-281-7000 or 1-866-866-7000, ext. 7544

François Dupuis
Vice-President and Chief Economist
514-281-7322 or 1-866-866-7000, ext. 7322

Yves St-Maurice
Senior Director and Deputy Chief Economist
514-281-7009 or 1-866-866-7000, ext. 7009

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