Modest growth reflects the economy's fragility, according to Desjardins Group economists

The financial markets' response to concerns is orderly

LÉVIS, June 20, 2011 /CNW Telbec/ - According to the Desjardins Group Economic Studies team, economic indicators have been signalling some weakness in a number of industrialized countries, particularly in the United States. This should not necessarily be read as a new trend, but rather as the combined impacts of a number of temporary coincident factors. "Growth should firm up in the second half of the year and continue in 2012, without being outstanding," stated François Dupuis, Desjardins Group Vice-President and Chief Economist.

Canada cited as an example
The recovery is over in Canada and the country has entered a new expansion phase. Despite a relatively enviable position, Canada's economy will have to deal with a number of challenges. These include the winding down of government stimulus plans, budget cuts, as well as a currency whose high value is still hurting exports. Interest rate increases in the second half of the year will also impact the real estate market and consumption negatively. Businesses should continue to invest, however. "Economic growth has been revised from 3.0% to 2.9% for 2011 due to temporary weakness this spring; for 2012, growth is maintained at 2.7%," emphasizes Yves St-Maurice, Director and Deputy Chief Economist at Desjardins Group.

Western provinces and Newfoundland and Labrador are currently benefitting from high oil prices. British Columbia could get a boost towards the end of this year and in 2012 from the reconstruction efforts in Japan. Ontario will benefit from a strong comeback by the auto sector, even though, in the near term, the province will be hurt by the supply problems with Japanese plants. For now, home building has not really slowed, but it's only a matter of time. Consumption is a little lacklustre, disrupted by the rise by gas prices and other factors. On average, Ontario's real GDP should expand by 2.8% in 2011 and 2.5% in 2012, similar to growth for Canada as a whole.

Consumer spending did worse in Québec than in most regions in Canada early this year, probably due to the 1% increase to the Québec sales tax (QST) in January. However, the good labour market situation is helping maintain consumer confidence. Québec stands out from Ontario and the rest of Canada particularly for the weakness of its exports. This situation is reflected in Québec's forecast growth for 2011 and 2012, at 2.2% and 2.3% respectively.

The events in Japan are muddying the waters
Global economic growth will be around 4.0% in 2011 and 2012, nowhere near 2010's 4.7%. There is still a major dichotomy between the performance of industrialized and emerging nations. Whereas industrialized economies are heading for economic growth of 1.9% in 2011 and 2.5% in 2012, emerging markets will see growth of 5.9% for these two years. The damage done by Japan's earthquake and tsunami on March 11, and problems that have arisen at a number of nuclear power plants have had repercussions on the global economy. A number of industrialized nations will have their economies slowed this spring by the collateral impacts of these recent events. However, the effects will be temporary. The rebuilding efforts needed will have a positive impact around the world in the second half of the year.

U.S. Real GDP growth has been revised from 2.7% to 2.5% for 2011; for 2012, growth is maintained at 3.0%. To get there, consumption will have to firm up, and the temporary effects associated with Japan will have to wane quickly. "The U.S. economy's structural problems, as well as the public debt load, which is raising concern among rating agencies, cannot be resolved without impacting economic growth," added Mr. Dupuis.

The central banks are not rushing to act
Despite the resurgence by inflation, most monetary authorities seem to be considering the importance of the many risks around the world. The main central banks are thus opting for caution, and the next key rate increases in Canada and the United Kingdom may only come at summer's end. The European Central Bank is more determined and should go ahead with another rate hike in July. For its part, the Federal Reserve will wait until next year before moving to raise its rates.

Oil prices are expected to stabilize at around US$100 a barrel for 2011, a situation that should take some pressure off inflation over the next few months. "The return of more sustained growth in the second half of the year will favour the stock markets, which should deliver annual returns of about 10% in Canada and 15% in the United States for 2011," concluded Mr. Dupuis.

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

About Desjardins Group
Awarded the coveted title "Bank of the Year 2010 - Canada" by the UK magazine The Banker, Desjardins Group is the leading cooperative financial group in Canada and the sixth largest in the world, with assets of over $184 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 5.8 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. As one of the largest employers in the country and one of Canada's 10 Most Admired Corporate CulturesTM of 2010, Desjardins is supported by the skills of its 42,500 employees and the commitment of nearly 6,000 elected officers. For more information, visit


For further information:

Information (for journalists only):
Nathalie Genest
Advisor, Media Relations
514 281-7275 or 1 866 866-7000, ext. 7275

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

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

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