North America's economy returns to more moderate growth, according to
Desjardins Group economists - Financial market volatility will dissipate, but
it won't be easy

LÉVIS, QC, June 18 /CNW Telbec/ - According to the Desjardins Group Economic Studies team, economic growth in several countries at the end of 2009 and start of 2010 fulfilled even the most optimistic expectations. The economy cannot keep performing at this pace for very long. "Although the conditions essential to a solid, lasting recovery are well entrenched, the pace at which the American and Canadian economies are growing can be forecast to slow," stated François Dupuis, Desjardins Group Vice-President and Chief Economist.

Canada is in a very comfortable position

The Canadian economy has posted an impressive turnaround. Real GDP jumped 6.1% in Q1 2010. "This performance will be slowed in the second half of the year with the disappearance of several temporary elements that had stimulated the housing market, the gradual increases to the Bank of Canada's key interest rates, the waning government contribution to growth, and an exchange rate that will come back to and stay above parity with the greenback," emphasizes Yves St-Maurice, Director and Deputy Chief Economist at Desjardins Group.

Although growth is forecast to slow in the second half of the year, Canada will post enviable performance in 2010, with its real GDP up by 3.6%. All of the provinces will benefit from a better environment, especially British Columbia and Ontario. BC will post growth of 4.0%, boosted by the Winter Olympics, while Ontario will be reaping the benefits of the manufacturing sector's gradual comeback; Ontario's real GDP will rise by 3.9%. Québec's growth will be 3.0% in 2010. The province has already recouped the production and employment losses incurred during the recession and it is now in an expansion phase. For next year, the economic forecasts will be more affected by the institution of restrictive measures to get public finances back into shape. This phenomenon will be magnified by fairly widespread monetary firming worldwide. Real GDP growth will drop to 3.0% in Canada, 2.8% in Ontario and, lastly, 2.5% in Québec.

More clouds in the United States

Trade with Europe is not extensive enough to lead to a quick pass-through to North America via this channel. The transmission mechanism to worry about the most is the financial markets, i.e. through the stock markets or by the drying up of liquidity around the world. Clearly, the Old World will have to cope with the negative impacts of the austerity plans, but the euro's softness will also act to stimulate exports for some countries. "However, the growth forecast for the euro zone has been lowered to 0.9 % in 2010 and 1.4% in 2011; the United Kingdom's forecast stays at 1.3% for 2010 and 2.3% for 2011. Global growth has been raised slightly to 4.0% for 2010 and 3.9% for 2011, mostly because the emerging nations have improved," added Mr. Dupuis.

There are fewer and fewer doubts about the strength of the American recovery, but hopes of seeing it keep going at this pace are slim. Job creation is still falling short of expectations, the real estate market will pull back with the end of the home buyers' tax credit program, and the greenback's abrupt rise will hurt exports. An overall performance of 3.0% is expected for the year, but economic growth will retreat to 2.8% next year, on the gradual winding down of the government stimulus program. The Federal Reserve will thus have few arguments for proceeding to raise key rates before the end of winter 2011. Contrary to what is happening in Canada, chances of seeing the yield curve flatten sharply in the near future are slim.

Commodities and the stock markets should start to shine again

Oil will benefit from the drop in financial strains in Europe. Crude prices will gradually climb toward US$88 a barrel by the end of 2010, reaching US$100 before the end of 2011. The trend will be similar for most industrial metal prices. The stock indexes should post substantial gains in the second half of the year. The S&P 500 should end 2010 up by more than 13%, then rise another 8% in 2011. The S&P/TSX will follow this trend with respective increases of 11.5% and 9.4%. "However, we may see some periods of major turbulence," concluded Desjardins Group economists.

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

About Desjardins Group

Desjardins Group is the largest cooperative financial group in Canada and the sixth largest in the world, with assets of over $165 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, Desjardins is supported by the skills of its 42,200 employees and the commitment of over 6,200 elected officers. For more information, visit

SOURCE Desjardins Group

For further information: For further information: (for journalists only): Francine BlackBurn, Advisor, Media Relations, (514) 281-7275 or 1 866 866-7000, ext. 7275; François Dupuis, Vice-President and Chief Economist, (514) 281-7000 or 1 866 866-7000, ext. 7322; Yves St-Maurice, Director and Deputy Chief Economist, (514) 281-7000 or 1 866 866-7000, ext. 7009

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