The struggle with the financial crisis and recession is not even over, and a new enemy is materializing: inflation!

    Forecasts by Desjardins Group economists

    LEVIS, QC, June 26 /CNW Telbec/ - Canada could go into a recession and
Ontario is already there, but Québec should be able to avoid slipping into
    After four straight months of pullbacks, the Canadian economy is at risk,
vulnerable to an official recession. This year, it will record a meagre 1%
growth, gaining more strength in 2009, at 1.8%. With a high dollar, stagnant
American economy and stronger international competition, foreign trade is the
Canadian economy's Achilles' heel, especially in central-eastern provinces
such as Ontario and Québec.
    That's what emerges from the latest forecasts by Desjardins Group
economists, released today.
    Highly dependent on trade with the United States, Ontario is being hurt
due to its overexposure to the structural and economic problems facing U.S.
automakers. "It now seems clear that Ontario is going through a recession,
though only a slight one. Economic growth is expected to reach just 0.5% in
2008, only regaining some steam in 2009, at 1.3%," stated Mr. François Dupuis,
Desjardins Group Vice-President and Chief Economist.
    In Québec, Desjardins' economists believe, the tax relief and investment
in infrastructure came at the right time to support growth. Québec's GDP will
match Canada's pace in 2008, and be just below it in 2009, at 1.7%. "The
Canadian aerospace industry's large concentration in Québec is an asset. To
stave off a recession, consumers will have to stand fast, despite the bite
being taken by skyrocketing gas prices," asserts Mr. Yves St-Maurice, Director
and Deputy Chief Economist at Desjardins Group.

    Growth jeopardized by inflation

    The talk is more focused on oil prices, especially in the United States,
where the rise in gas prices has been magnified by the soft dollar. The impact
is so substantial that a large portion of the tax rebates issued under the
economic stimulus plan could be eaten up to help deal with the increase in
energy prices. Forecast real GDP growth for 2008 is 1.2%, but the outlook has
been lowered from 1.9 % to 1.3% for next year. According to Desjardins'
economists, it will take longer for the housing market to get back to
equilibrium, while consumer confidence, now at a historic low, will remain
    Globally, the economy will feel the effects of the American slowdown,
tightening credit conditions, drop in consumer confidence and increase in
prices for oil and foodstuffs. Following global real GDP growth of nearly 5%
in 2007, growth is expected to plummet to 3.7% in 2008 and 2009.

    An end to rate cuts

    While noting that the global financial crisis has left its mark,
Desjardins' economists believe that the situation is now calmer. But just when
a period of respite seemed to be emerging, inflation is rearing its head
again, looming over monetary authorities. Another battle is in the works.
    Given the fear of seeing inflation become entrenched in the economy and
the risk that inflation expectations could go off on a lasting upward tangent,
at central banks, the overall order of the day is to not pour oil on the fire
by lowering interest rates. "This confirms that price stability is the central
banks number one priority," says Mr. St-Maurice.
    For now, the central banks think that prevention is the best possible
action. Over the next few months, a status quo appears to be more likely than
rate hikes, as sometimes rumoured. The European Central Bank (ECB) will be the
exception, instituting a single 25 basis point increase in July.
    For its part, the Bank of Canada decided to fall in with the trend on
June 10 when, to general surprise, it kept its key rate at 3.0%. Desjardins'
economists believe the monetary policy status quo should extend through 2008,
keeping mortgage rates very close to where they are now.

    Oil should fall back below US$100/barrel

    As for oil, the bubble could burst without warning, but a more likely
scenario is a gradual return toward crude prices that are founded on the
theory of supply and demand. According to this theory, prices should drop back
below US$100/barrel in early 2009. According to Desjardins' economists, in
combination with a more stable greenback, sliding oil prices will stop the
loonie from going any higher, and make it oscillate in the US$0.95 to US$1.05
range until the end of next year.
    "We anticipate that the S&P/TSX will end 2008 with an increase of about
5%. We can therefore expect the index to fall by year's end on the forecast
drop in prices for oil and raw materials. In 2009, it should gain 6%, and we
could see substantial volatility," adds Mr. Dupuis.
    In conclusion, Desjardins Group economists believe that the surge by
crude oil and grain prices constitutes the most serious risk to the world's
economy at this point, especially as the economy has already been sapped by
several concurrent shocks.

    About Desjardins Group

    Desjardins Group is the largest integrated cooperative financial group in
Canada, with overall assets of nearly $150 billion, as at March 31, 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; Yves St-Maurice,
Director and Deputy Chief Economist, Desjardins Group, (514) 281-7000, ext.
2336, 1-866-866-7000, ext. 2336

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