Market fears wane, but confidence is still fragile
LÉVIS, QC, Dec. 20 /CNW Telbec/ - According to the Desjardins Group Economic Studies team, emerging nations are still in the lead in terms of economic growth, while industrialized countries are trailing, hoping to resolve their structural issues quickly. "However, after a long period of inertia, some investors seem to be regaining a little appetite for risk, which is rippling into bond yields and stock markets," stated François Dupuis, Desjardins Group Vice-President and Chief Economist.
Canadian growth loses steam
The Canadian economy has lost a lot of its lustre in the last few months. Soft U.S. demand, the strong loonie and fast import growth have prompted the trade balance to deteriorate sharply. Residential investment is on the wane and the contribution of government expenditures is declining. That said, domestic demand will remain fairly robust, thanks to an upswing by non-residential investment and sustained consumer spending growth. Under these conditions, the Canadian economy should continue to show a moderate pace of growth for the coming quarters. 2011 could end with just 2.3% real GDP growth. "Even though the Bank of Canada is still saying that the level of monetary accommodation must be further reduced, soft growth in Canada means that a return to key interest rate increases will be put off until July," emphasizes Yves St-Maurice, Director and Deputy Chief Economist at Desjardins Group.
Québec's employment market stands out for its rapid recovery, a net advantage for the province. However, the gradual decline by investment in public infrastructures, controlled government spending and the higher tax burden on households will curb growth somewhat in 2011. The real GDP should rise 2.3% in 2011, a pace similar to the national average. In Ontario, the housing market slowdown, recent cresting by the auto industry and impact of the strong loonie will hamper economic growth in the next few quarters. Performance that is slightly below the average for Canada as a whole is expected in 2011, i.e. 2.2%. Elsewhere in Canada, the rise by commodity prices should stimulate growth, while many investment projects are underway.
Still waiting for the U.S. job market to recover
Many uncertainties continue to hamper global economic growth, especially in industrialized nations. This is especially true in Europe, where there are growing fears associated with the financial situation in some nations. The gap between emerging nations and industrialized countries is growing. While, in G7 nations, the economic recovery is still uncertain, emerging nations are posting impressive economic growth, and real GDP is forecast to grow 6.1% for 2010.
In the United States, a number of economic indicators have shown signs of improvement in the last few months. However, the economic situation is still shaky because the job market's upswing is quite timid. That will impact consumers' enthusiasm in the next few quarters. The soft housing market is another major concern. After gaining 2.8% in 2010, U.S. real GDP should advance 2.4% in 2011 and 2.8% in 2012.
Given the persistence of the stumbling blocks in the job market and drop by core inflation, the Federal Reserve instituted a second quantitative easing program whose effects will be felt until next spring. Under these circumstances, we cannot expect key interest rates to be raised before the summer of 2012. "The U.S. economy will continue to have a great deal of stimulus," added Mr. Dupuis.
Clearing in the markets, but watch out for bursts of excess enthusiasm
Thanks to lively profit growth, especially in the United States, North America's stock markets still have some solid growth potential over the medium range. Although the early part of the year promises to be volatile, the S&P 500 should advance by about 15% in 2011. An ongoing rise by oil prices, which should reach US$95 by the end of 2011, will help the S&P/TSX, which could advance by 10%. "The progressive rise by prices for most raw materials will help the Canadian dollar to entrench itself above parity against the greenback in 2011," concluded Desjardins Group economists.
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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 $175 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 42,200 employees and the commitment of near 6,000 elected officers. For more information, visit www.desjardins.com.
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