Canadians’ confidence in the economy appears to be reviving but some of the country’s leading bank economists predict the pickup will be relatively slow and that it could take years to return to pre-recession conditions.
“This is the recession that will go on giving,” Don Drummond, chief economist of TD Bank Financial Group, told a gathering at the Economic Club of Canada Wednesday.
“We will be talking about remnants that built up well into 2011, (even) 2014.”
Economists at the other big banks share a similarly cautious outlook for the year, predicting that Canada and the United States will experience 2.5 to three per cent growth in gross domestic product this year, with jobs growth showing modest gains and the Canadian dollar inching ahead
A survey by Pollara Strategic Research for the Economic Club of Canada suggests that Canadians are more optimistic than they were last year but remain wary, particularly when it comes to the jobs front.
The study found that 54 per cent of Canadians surveyed in December believed the economy will improve in 2010, a huge boost from the same time last year when only 20 per cent expected 2009 would bring better times.
The Pollara poll also found more respondents, about 17 per cent, believed Canada is in a period of moderate growth, compared with only six per cent who felt that way in 2009.
The results weren’t all positive, though.
Pollara found fewer than half of those surveyed (43 per cent) said they think the employment situation will improve and nearly one-quarter (22 per cent) felt the situation will worsen in 2010.
However, both were improvements from last year when only 12 per cent felt employment would improve and 68 per cent thought the job situation would deteriorate.
More than three-quarters of Canadians surveyed by Pollara (78 per cent) still believed Canada is still in recession, but that’s down from 91 per cent a year ago.
Economists have said they expect unemployment in Canada and the United States would continue to rise, as is often the case in the early stages of a recovery.
“What we are likely to see is more of what we’ve been seeing,” said Avery Shenfeld, chief economist at CIBC World Markets.
“We will likely have the unemployment rate crest and come down, but it doesn’t look like it will come down aggressively this year.”
“It’s enough to keep Canadian consumers spending, not necessarily at a barn-burner pace, but reasonably comfortably.”
Stronger optimism about the economy has shown up in several recent economic reports, including one by the Conference Board of Canada, which said that its consumer confidence index rose in December after weakening for two consecutive months.
Another study by Royal Bank (TSX:RY) showed that more Canadians were confident about their financial situations in December, and that they were less worried about the job security of people in their households.
The Bank of Canada has warned that a stronger Canadian dollar could offset economic gains by making exports to the United States less competitive.
The Canadian dollar was at 96.85 cents US on Wednesday, up about two cents over the past week.
Craig Wright, chief economist for RBC Financial Group, said that he expects the loonie to rise above the U.S. dollar in the coming months before falling back below parity by the end of the year.
He said that a climb towards parity could encourage some companies south of the border to ramp up their orders for machinery, including orders for domestically manufactured construction equipment.
“A strong Canadian dollar makes importing machinery that much more affordable,” he said.
“That’s going to offset ongoing weakness on the trade side.”
Meanwhile, a recent report from the U.S. Institute for Supply Management said its manufacturing index rose to the highest level in almost three years in December, an increase that’s expected to provide an indirect boost to Canada’s manufacturers.
BMO Capital Markets chief economist Sherry Cooper said that even if the loonie touches parity, or at least hovers around its current levels, other currencies will prevent any major upswing.
“Until China is willing to allow its currency to rise significantly, much of the burden of the U.S. dollar’s fall will be on currencies like Canada’s,” Cooper said.
Scotiabank economist Warren Jestin said he believes the developed world will see a much slower growth trend than considered normal in the past, and that developing nations like China, India and Brazil will launch stronger growth rates.
“We are on the road to recovery but it certainly isn’t taking us back to where we were before the recession began,” he said.
Pollara chairman Michael Marzolini said that while many Canadians’ fears about the economy have abated, “the public has now shifted to focus on the growing national debt.”
Marzolini said that the number of Canadians expecting higher taxes has doubled since the survey last year.
The results were collected by Pollara from 4,263 respondents between Dec. 6 and Dec. 14 and were considered to be accurate within 1.5 percentage points, 19 times out of 20.
Small and medium-sized businesses owners, meanwhile, are taking the signs of growth lightly, and a separate poll by the Canadian Federation of Independent Business suggests that they are leaning more towards caution.
The federation said its December survey suggests the economy was still only recovering at a gradual pace during the month, with its business barometer index falling to 63.7 from 68 a month earlier and still below a 2009 peak of 68.7.
It said the sour mood among small business owners and operators last month prevailed across 10 of the 13 industry categories the federation surveys and in 8 of 10 provinces.
The federation’s chief economist Ted Mallett said the survey indicates that small business owners felt they were not “out of the woods yet” after the recession, and were worried that there will be a large tax bill to deal with alongside slow economic growth.