Robust rebound could hurt long-term recovery: experts

OTTAWA — A strong economic rebound after a painful year of recession is laying a trap for policy-makers that could derail a smooth, sustainable recovery over the next few years, economists are warning.

OTTAWA — A strong economic rebound after a painful year of recession is laying a trap for policy-makers that could derail a smooth, sustainable recovery over the next few years, economists are warning.

With leaders of the G20 meeting on the economy later this week, several economists are issuing a caution not to believe all the strong indicators pointing to a robust V-shaped rebound that would quickly erase the losses of the past year.

Scotiabank economists say Canada’s economy is behaving like a trampoline.

With retail sales data on Tuesday expecting to show a strong gain in July, the bank’s economists say it is possible for economic growth to have advanced about one per cent during the month, constituting the best one-month gain in five years.

The economists have now joined Merrill Lynch’s Sheryl King who is forecasting the economy to grow as much as 3.5 per cent in the third quarter that ends Sept. 30. That’s a remarkable turn-around for an economy that shrank 3.4 per cent in the second quarter and 6.1 per cent in the first.

“This is a flash in the pan and not sustainable into next year, but I don’t know that markets will see it that way,” cautioned Derek Holt, vice-president of economics at Scotia Capital.

“The danger is that policy-makers believe the recovery is going V-shaped and back off the gas pedal. I hope they can resist the market, political and rating-agency pressure around the world and keep the foot on policy stimulus, but it’s an open debate.”

Douglas Porter, deputy chief economist at BMO Capital Markets, adds that what appears to be a quick rebound is stalling momentum for financial market reforms, including executive compensation rules and tighter oversight.

Prime Minister Stephen Harper gave every indication that he does not believe the time has yet come to apply fiscal or monetary brakes on the economy.

He told reporters Monday that while the recession may be ”technically over,” a true recovery will come only when labour markets recover.

“I think the recovery, while it exists, is extremely fragile and does require the concentration of governments at all levels and in the G20 to ensure that the recovery,” Harper said.

And in a speech in Gatineau, Que., Finance Minister Jim Flaherty said while he expects Canadian growth to top the G7 next year, he also does not believe it is time for exiting from stimulus yet. He pointed out that January’s budget set in motion a two-year stimulus plan and he intended to “stay the course.”

The signs that the rebound is stronger than even many optimists could have predicted as recently as two months ago continue, however.

On Monday, the U.S. Conference Board issued it’s forecast of leading indicators projecting economic activity three-to-six months ahead. The thank-tank’s forecast rose 0.6 per cent in August, following an upwardly revised 0.9 per cent gain in July.

In Canada, a new Nanos Economic Monitor survey found confidence in the economy has risen sharply to a level not seen since the fall of 2007, before the recession hit. The tracking finds 45 per cent of Canadians believe the economy will strengthen in the next six months, two and a half times more than think it will weaken. As well. 66 per cent said their personal job situation was secure.

The BMO Capital Markets commodity price index also advanced 6.1 per cent in August, a strong signal for Canada’s resource sector.

“Whether you are looking at Canada’s, the U.S. or even the OECD’s leading indicators, they are all pointing to a straight-on V-shaped recovery,” Porter said.

“I’m quite convinced we are in recovery, but even two months (of growth) doesn’t quite seal the deal.”

Just Posted

Parenting: Every woman will have a different pregnancy experience

Wife whose hormones are unbalanced can be unpleasant experience

Men posing as repo men attempt to steal vehicle in Red Deer County

Two men attempted to steal a utility vehicle from a Red Deer… Continue reading

Red Deerian spreads kindness with one card at a time

One Red Deerian wants to combat bullying by spreading kindness in the… Continue reading

Bowden baby in need of surgery

“Help for Alexis” Go Fund Me account

PHOTO: First Rider bus safety in Red Deer

Central Alberta students learned bus safety in the Notre Dame High School… Continue reading

WATCH: Annual Family Picnic at Central Spray and Play

Blue Grass Sod Farms Ltd. held the Annual Family Picnic at the… Continue reading

Women-owned businesses generate $68,000 less revenue than men’s: survey

TORONTO — When Dionne Laslo-Baker sought a bank loan to expand her… Continue reading

Hedley frontman Jacob Hoggard’s alleged sex offences case returns to court

TORONTO — The case of Hedley frontman Jacob Hoggard, who faces three… Continue reading

Fredericton woman recounts terrifying moments after gunshots rang out

FREDERICTON — She awoke to the crack of gunfire, the shots fired… Continue reading

Climate change likely to cause more sewage leaks, McKenna says

OTTAWA — More than one hundred municipal wastewater systems did not report… Continue reading

Woman has finger ripped off at West Edmonton Mall waterslide

SASKATOON — A Saskatchewan woman says she lost a finger after her… Continue reading

Uncertainty looms over Canada’s cannabis tourism, but ambitions are high

TORONTO — Longtime marijuana advocate Neev Tapiero is ready for the cannabis-driven… Continue reading

Feds mulling safeguards to prevent ‘surge’ of cheap steel imports into Canada

OTTAWA — The federal government extended an olive branch of sorts to… Continue reading

Ontario govt caps off summer session by passing bill to cut Toronto council size

TORONTO — The Ontario government passed a controversial bill to slash the… Continue reading

Most Read

Five-day delivery plus unlimited digital access for $185 for 260 issues (must live in delivery area to qualify) Unlimited Digital Access 99 cents for the first four weeks and then only $15 per month Five-day delivery plus unlimited digital access for $15 a month