Global Growth Still Likely to Trail Consensus in 2011-12
TORONTO, June 29, 2011 /CNW/ - A debt-ridden, thriftier consumer, who
has been hit by high gasoline prices, will help to make the second
quarter of 2011 Canada's weakest since the recession, finds a new
report from CIBC World Markets Inc.
The report expects Canadian real GDP to grow by only one per cent this
quarter but rebound in the third and fourth quarters to bring growth
for the year as a whole to 2.7 per cent. It also calls for global
growth to come in at 3.8 per cent in 2011. That's about half a point
below the still relatively upbeat estimates from some international
bodies like the IMF.
"The train hasn't come completely off the rails, but the global economy
has seen some serious braking action in the first half of 2011," says
Avery Shenfeld, Chief Economist at CIBC. "We expect generally weak
growth readings to roll out in the major developed economies for the
next couple of months. Growth in the U.S. second quarter should,
nevertheless, be no worse than Q1's 1.9 per cent disappointment."
Mr. Shenfeld notes a downshifting domestic recovery means Canada has
even more than usual riding these days on the ability of the U.S.
economy to stay out of protracted trouble. He says there are four
aggregate measures that are useful for tracking short-run variations in
the pulse rate of the U.S. economy, and none is currently flashing red.
The first, simplest, and most optimistic, is total hours worked.
"If Americans are putting in more hours at the plant or the office,
surely there must be something to show for it," he adds. "In three
decades of data, the U.S. has never posted a negative quarter for real
GDP without having a decline in total private hours worked. Even if
June is flat, private hours will be up at an annualized 3.8 per cent
Another measure is the Philadelphia Federal Reserve Board's ADS index.
This combines data on jobless claims, employment, industrial production
and other indicators into a weekly revised index of economic activity.
"It has been consistently below zero (designed to be its average level)
since the start of Q2, indicative of worse-than-average conditions,"
says Mr. Shenfeld. "But its recent range, holding better than -0.5, is
still similar to what we saw in Q3 2010, and above many of the dips
during the last two expansions—again suggesting that growth won't be
below Q1's pace. A reading of -1 or worse has typically been more
consistent with recession onsets."
A third measure is the broader, but less frequently updated National
Activity Index from the Chicago Fed. This index needs a three-month
average of -0.7 or worse to indicate the onset of a recession. May's
three-month average of -0.19 merely indicates that growth is below
trend. The fourth measure, the Ceridian-UCLA Pulse of Commerce Index,
is a real-time tracking of fuel purchased by trucks using Ceridian's
"The theory is that when "stuff" is being moved, it's a sign of economic
activity. May's decline was the fourth in five months, which UCLA
interprets as consistent with sub-two per cent growth, but not a
Mr. Shenfeld's downgrade of his second quarter forecast for Canada is
driven by a downward revision to prior net export data. He notes that
exports entered the quarter with less momentum than previously reported
and saw a further dip in April tied, in part, to supply disruptions
from Japan. Poor weather also delayed some seasonal retail spending
that month, a trend that likely extended into a soggy and chilly May.
Agriculture was also impacted by excess rain in the Prairies.
But as in the U.S., he is seeing some key data on the ground that
provides hope for an improvement in coming months. He notes that
private sector hiring has been very robust, and the recent Manpower
survey pointed to at least as good a performance in the quarter ahead.
That degree of confidence is more consistent with Q2 being a bump in
the road rather than the start of something worse. Auto company
production schedules point to a 21 per cent rise on the year in Q3
assemblies, suggesting that sector will help to lift the economy in the
second half of the year, as supply troubles related to the disaster in
"After a second half bounce, we expect Canada's growth rate to settle
back, leading the Bank of Canada to pause for three or four quarters
after taking the overnight rate to merely 1.75 per cent in early 2012,"
adds Mr. Shenfeld. "Government spending will be slowing rather than
propping up the economy, with as much as a half-point drag on the
economy next year.
"Although a U.S.-style crash is unlikely, housing also won't be doing
the same heavy lifting as earlier on in the recovery. Our forecast of
173,000 starts in 2011 implies a reduction of nearly 10 per cent from
2010's cyclical peak. A highly leveraged consumer means that monetary
restraint will pack a larger wallop than in the past, limiting the
tightening dose that the Bank has to deliver. Along with a desire not
to get too far out of sync with a stand-pat Fed, the need to avoid
derailing the debt-ridden household sector will keep real overnight
rates below zero even with the economy closing the gap to full
Mr. Shenfeld has put off his call for the first Bank of Canada rate hike
to October from September, with a delay to December still a
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/eijun11b.pdf.
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SOURCE CIBC World Markets
For further information:
Avery Shenfeld, Chief Economist, CIBC World Markets Inc. at (416) 594-7356, firstname.lastname@example.org; or Kevin Dove, Communications and Public Affairs at 416-980-8835, email@example.com