Recovery taking hold

Economists at some of Canada’s largest banks say the Canadian and world economies will continue to rebound in 2010, and that Canada will lead the way among industrialized countries.

Economists at some of Canada’s largest banks say the Canadian and world economies will continue to rebound in 2010, and that Canada will lead the way among industrialized countries.

The economists predict global growth will rise by as much as four per cent in 2010 and the Canadian economy’s growth of up to three per cent will lead the G7 countries in returning to pre-recession levels of gross domestic product.

“We do see a broader recovery taking hold next year,” said Douglas Porter, deputy chief economist at BMO.

He added that he expects the global economy to improve by about 3.6 per cent, reverting to a more normal growth rate. The average yearly global growth rate is about 3.5 per cent.

“The global economy actually saw an outright contraction or decline in 2009, which is extremely unusual. By some measures, we haven’t seen a drop in global GDP since the ’50s,” Porter said.

Stefane Marion, chief economist of National Bank, says central banks and governments’ attempts to loosen credit markets are proving successful, as leading economic indicators continue to gain strength.

“Their massive injections of liquidity are bearing fruit: credit markets are normalizing and economic growth has resumed in many countries and regions,” Marion said, adding a four per cent rebound is plausible.

National Bank noted that unlike previous upswings, the global recovery will be spearheaded by emerging economies, which account for more than two-thirds of the 2010 global growth forecast.

Economists at Desjardins Group predicted global GDP will expand by about 3.4 per cent in 2010.

“Even though some structural problems persist and some countries are still lagging behind, a few of them will no doubt return to pre-recession production levels in 2010,” they said.

The newest TD Bank forecast calls for the world economy to expand by a fairly robust 3.8 per cent next year, after a one per cent retreat in 2009.

Desjardins said although developing countries will continue to act as drivers, Canada and the United States will lead the industrialized countries with growth of more than two per cent each over the next two years. They are expected to return to pre-recession levels of real GDP by the end of 2010.

Many economists predicted Canada’s economy would grow around 2.6 per cent, less optimistic than the Bank of Canada’s prediction of three per cent.

Porter said the predictions are close to the growth in the Canadian economy in an average, non-recession, year.

“(Those) followed a very deep drop in 2009, where the economy fell by two and a half per cent, so basically it will just fill in the hole that was left by this miserable year we’ve just had for the economy,” Porter said.

RBC Economics has also predicted that with expected growth rates of 2.6 per cent next year and 3.9 per cent in 2011, Canada will lead the G7 in recovering from the deep recession.

TD said Canada’s economy will bounce back strongly during this current quarter — the October-December period — with a 4.1 per cent annualized advance, followed by a more modest 2.7 per cent expansion in 2010.

Typically, deep recessions are followed by growth rates of four-to-six per cent as production ramps up to meet pent-up demand.

But the TD Bank says weak U.S. demand and increased competition as a result of the high-priced loonie will temper exports, even as shipments to non-U.S. foreign markets pick up.

Porter said the recovery has been lopsided because domestic indicators, like consumer spending and activity in the housing market, are picking up, while exports and trade continue to lag.

He added the trend, which is tied to the rapid rise of the Canadian dollar, will continue to be the theme of recovery in 2010 due to “handcuffed” U.S. consumers and a strong loonie that will continue to rise.

“One of the real legacies of this so-called great recession is that the U.S. consumer is just not going to be the powerhouse that it has been in the past, and that means the rest of the world is going to have to rely on their own domestic demand,” Porter said.

Typically, increased consumer spending is the first indicator of recovery, while the unemployment rate is always one of last indicators to turn around, Porter explained.

Despite increased sales, businesses try to get by with the staff they have and only when they are thoroughly convinced there is an economic pick up, will they hire new employees, he said.

“It’s quite important that housing has turned the corner so rapidly and that consumer spending is hanging in there, both of those things will help support modest job gains in 2010.”

TD Bank economists believe the upturn will create jobs in Canada — about 280,000 of them next year.

The bank has employment rising in each quarter next year and into 2011, with the jobless rate returning to 7.3 per cent in the fourth quarter of 2011. It currently stands at 8.5 per cent.

Porter’s unemployment rate estimate was less optimistic, and said the rate would likely stay closer to 8.2 per cent in 2010.

The estimates are part of the newest year-ahead forecasts for the world and Canadian economies that shows growth has begun after about a year of contraction.

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