Recovery from the global recession is likely to arrive earlier than had been expected a few months ago, but the pace of activity will remain weak well into next year, the Organization for Economic Co-operation and Development said in a forecast Thursday. Canadian economists agree that the global economy is turning the corner. Here's a look at what that means for Canada:
Scotiabank's take: We'll get there, be patient
“Canadian domestic activity will revive in the months ahead as consumers begin to return to the malls in greater numbers and a myriad of government-funded shovel-ready projects actually get into the ground,” Bank of Nova
“The Bank of Canada will likely nudge up interest rates as the economy recovers in 2010, but borrowing costs will not be an impediment to the revival of domestic demand. However, with foreign sales one-third of Canada's gross domestic product, the strength of the rebound will be tied to commodity markets and reversing the recent slide in U.S. sales,” Mr. Jestin said.
Canada is already benefiting from higher commodity prices in response to demand from China and other nations, he wrote, but global growth through 2010 will be tepid.
“The United States rebound will help bolster south-bound exports, but gains will be tempered if, as we expect, the loonie moves towards parity vis-à-vis the U.S. dollar as commodity markets strengthen further and the greenback comes under pressure on global currency markets,” Scotiabank said in its report.
“The bottom line – we will soon begin moving away from one of the most difficult economic setbacks experienced in our lives, but patience will be required because the road to recovery will be a long and winding one.”
Housing market recovering - but prices expected to moderate
Housing starts are expected to rebound in the second half of 2009, reaching a total of 141,900 for the year, and will increase to 150,000 in 2010, Canada Mortgage and Housing Corp. forecast Thursday.
This marks an improvement, but is well down from the 211,056 starts in 2008 as Canada came off a prolonged housing boom.
“Economic uncertainty and lower levels of employment tempered new housing construction in the first half of the year,” CMHC economist Bob Dugan said. “In the second half of 2009 and in 2010, we expect housing markets across Canada to strengthen.”
“Existing home sales … have rebounded strongly since January and will reach 420,000 units in 2009 and remain close to that level at 419,000 units in 2010,” CMHC said. “The average price is expected to moderate to $301,400 in 2009 and to increase to $306,300 in 2010.”
Jobless rate: still rising
Economists expect that the Canada's unemployment rate continued to rise in August.
Bank of Nova Scotia said in a note to clients that Friday's Statistics Canada release is expected to show a loss of 15,000 more jobs, and an increase in the unemployment rate to 8.8 per cent.
Furthermore, the labour market recovery will be slow, economists say.
“It is often said that employment is a lagging indicator, and that's particularly the case when the recovery is only modest, and that's likely to be the case in this cycle as well,” Bank of Montreal deputy chief economist Douglas Porter said this week in an online discussion on reportonbusiness.com.
“We don't believe that we will see a meaningful pullback in unemployment rates until the spring. Employers need to be convinced that the turn in the economy is for real, then they will shift part-timers to full-time, then go to overtime, and only after that begin to hire people again. And even then, payrolls may not rise as quickly as the underlying growth in the labour force,” Mr. Porter said.
Beyond the recovery: new world realities
“The road to recovery won't take us back to the world that existed before the sub-prime crisis began,” Scotiabank's Mr. Jestin said. The global financial system is being revamped, he noted, and “big government deficits are back and will be politically difficult to unwind…
“The global economic landscape is also changing, with developed nations like Canada and the U.S. likely to experience relatively subdued growth in the decade ahead,” Mr. Jestin said.
“World activity will be driven increasingly by China, India, Brazil and other emerging powerhouses, with their production and investment decisions having a major impact on world trade, commodity prices and financial markets.”
For Canadian businesses: tougher competition, new opportunities
“For many Canadian businesses, these new world realities point to tougher competition in traditional markets, but a world of opportunity in emerging ones,” Mr. Jestin said. “Our share of the U.S. market has dropped significantly over the past decade, with China gaining bragging rights as the largest U.S. supplier and, excluding energy products, the euro zone surpassing Canada in U.S.-bound sales.” This calls for new approaches.
“Focusing our collective attention and scarce national resources on supporting the familiar while avoiding the unfamiliar is a losing strategy,” Mr. Jestin said.
“At a time when the auto sector and other traditional manufacturing industries are shedding jobs, new enterprises associated with environmental remediation, global infrastructural development and emerging market demands have the potential for sustained, rapid growth.”