According to Desjardins Group economists, the expected economic recovery will resemble the slowdown: quiet and slow

    Retreating inflation and financial crisis would pave the way for
    monetary easing

    LEVIS, QC, Sept. 23 /CNW Telbec/ - The majority of industrialized
countries will experience a long period of economic stagnation, and Canada is
no exception.
    "With economic projections this low, i.e. below long-term potential
production, we are clearly going to see a long period of quasi-stagnation,
especially given that there are several major downward risks looming. The
recovery will be slow and progressive, with no fireworks", stated Mr. François
Dupuis, Desjardins Group Vice-President and Chief Economist, in the latest
forecasts by Desjardins Group economists, released today.
    Despite the upward change to the forecast for U.S. economic growth,
taking it from 1.5% to 1.8% for 2008, Canada's projections had to be trimmed
from 1.0% to 0.6% this year, and from 1.8% to 1.3% for 2009. Downward
adjustments were made for most provinces. Ontario, which is now clearly in a
recessionary period, will see its real GDP contract by 0.1% in 2008, then grow
by 0.9% in 2009. Québec is doing a bit better, with growth of 0.5% in 2008 and
1.3% in 2009. Exports have seen less of an impact than their neighbour's, and
investments in infrastructure are helping.
    One year after the financial crisis started, we have certainly seen some
violent movement, even panic, but to date the damage, though extensive, has
been limited by tough action by central banks and governments. The bailouts of
Bear Stearns, Fannie Mae, Freddie Mac, and most recently, AIG, show their
determination to put forth all necessary efforts to stabilize the financial
sector. For government authorities, this financial crisis is a challenge
unlike any other they've seen since the beginning of the modern economic era,
and Desjardins' economists believe that the plan recently announced by U.S.
authorities to bail out banks by buying their doubtful assets-one that
requires an injection of $700B-clearly demonstrates the scope of this
    According to them, investor and consumer confidence has been severely
tried and it will take some time before it recovers. "Even though a North
American recession will have been avoided, or else only small, this will be a
long convalescence; patience will be in order before we see economic growth
that is in line with potential", added Mr. Dupuis.

    A series of blows to the economy

    In addition to the U.S. housing crisis and liquidity and credit crunches,
skyrocketing oil prices, which started at about US$95/barrel at the end of
2007 and ended close to US$150/barrel in July, had a fairly devastating impact
on the world's economy. The euro zone and Japan saw their real GDPs contract
in the second quarter. Canada felt the tumble primarily in the first quarter,
but the weak annualized 0.3% growth that followed it was not very promising,
either. The United Kingdom, for its part, stood still. Although most
forecasters had expected to see the United States go into recession,
astonishingly, with growth of 3.3%, it was the country that recorded the best
economic performance. Overall, the world's economy should advance by about
3.7% in 2008, down by one percentage point from 2007.
    "Energy prices are not the only reason for the collapse of global
economic growth. Credit conditions once again toughened worldwide, and the
housing market shakeout has spread beyond America's borders, reaching the euro
zone and the United Kingdom", asserts Mr. Yves St-Maurice, Director and Deputy
Chief Economist at Desjardins Group.

    Canada beset from all sides

    Despite encouraging American growth, all in all, in the second quarter,
U.S. domestic demand is still weak. Consumption remains fragile and the
housing market will not be gaining strength soon. Under the circumstances,
foreign trade is the sector that has buoyed the American situation, with the
soft greenback stimulating exports. On the other hand, American imports of
good and services contracted sharply during this period, damaging Canada's
    Simultaneously, housing construction in Canada is softening, with tougher
credit conditions and a deteriorating labour market. "Along with government
spending, personal consumption is the only factor that is allowing Canada's
economy to keep its head above water; however, with confidence at a low ebb,
the hope of avoiding a recession is holding on by a thread", adds Mr.

    Most future key rate movements will likely be to the downside

    With energy prices down and economic growth in a slowdown, we expect
inflation to slowly retreat on its own over the next few months. This will
allow the central banks to focus their efforts on soft economic growth and the
challenges facing the financial sector. According to Desjardins' economists,
the next changes in heading for key rates are expected to be to the downside.
    "It is unlikely that the Federal Reserve (Fed) will be the one that
initiates the downward movement. Rather, the United Kingdom and Canada should
take the lead, toward the end of this fall. The European Central Bank will
probably step into line in early 2009 while the Fed, which is already several
steps ahead in the monetary easing process, will stay on the sidelines until
at least fall 2009", stated Mr. Dupuis. The Canadian dollar will no longer be
getting support from high oil prices, which have fallen to US$100/barrel and
should stay below this level until the end of 2009. The loonie should thus
lose strength by the end of the year, then gradually come back toward parity
some time next year.

    Yields are declining on the bond and stock markets

    "Those who play the stock market could see periods of instability until
the end of 2008. They will likely have to wait for 2009 before seeing positive
returns on their portfolios", says Mr. Dupuis. As a result of the financial
sector's enormous losses, the economic slowdown and drastic tumble by raw
materials prices, North America's stock markets will record negative returns
for 2008. "This is a sizeable correction to our previous scenario", he added.
He says that the S&P500 should end the year at around 1,320, then record a
more than 7% comeback in 2009. Hard hit by tumbling commodity prices, the
S&P/TSX will end 2008 down 6%, a negative return that it will completely wipe
out next year.
    Desjardins' economists stress that the better word for characterizing
this period is stagnation, without any clear up or down trend. Most countries
are seeing mixed signals regarding future movement by their economies.
However, the brutal impact that soaring oil prices had on economic growth are
slowly being absorbed, so we can be moderately positive about the outlook for
the next few quarters. "There are still many downside risks to our scenario,
namely with respect to the financial sector. It hasn't been ruled out that
other events could arise that would further disrupt the current climate.
Should this occur, we will modify our future economic and financial
scenarios", they concluded.

    About Desjardins Group

    Desjardins Group is the largest integrated cooperative financial group in
Canada, with overall assets of nearly $152 billion, as at June 30, 2008. It
comprises a network of caisses, credit unions and business centres in Québec
and Ontario, and some twenty subsidiary companies in life and general
insurance, securities brokerage, venture capital and asset management, many of
which are active across the country. Drawing on the expertise of its 40,000
employees and the commitment of more than 6,500 elected officers, Desjardins
offers its 5.8 million individual and corporate members and clients a full
range of financial products and services. Its physical distribution network is
complemented by leading-edge virtual access methods. To find out more, consult

For further information:

For further information: (for journalists only): Nathalie Genest,
Advisor, Information and Media Relations, Desjardins Group, (514) 281-7275, 1
(866) 866-7000, ext. 7275; François Dupuis, Vice-president and Chief
Economist, Desjardins Group, (514) 281-7000, ext. 7322, 1 (866) 866-7000, ext.
7322; Yves St-Maurice, Director and Deputy Chief Economist, Desjardins Group,
(514) 281-7000, ext. 7009, 1 (866) 866-7000, ext. 7009

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