Canada's economy makes steady recovery
Monday, 27 July 2009
Gopal Sengupta
Twelve countries have best survived the global recession. These are: Australia, China, India, Singapore, Hong Kong, Canada, Japan, Qatar, New Zealand, Malaysia, Sweden and Vietnam.
There is a lot of hue and cry about economic slowdown in various countries. The slowdown in economy is primarily of two types -- depression and recession. Depression does have a longer time effect as compared to recession. Capital market experts treat recession as a healthy sign for a period of one to two years after a bullish phase of three to five years. So, why is so much hue and cry about a normal phenomenon which is bound to happen?
The Bank of Canada has declared that the recession is essentially over in Canada and projected that the country's economy will bounce back at least twice as strongly as in the United States. The bank said on July 23 that Canada's economy will grow by 1.3 per cent during the current July-September period, and by three per cent in the fourth quarter, both at annualised rates. The bank's quarterly monetary policy report makes some observations about how the world and Canada are coming out of the deepest and most painful downturn since the Second World War.
The bank remains concerned that the fragile financial systems in the United States and Europe may contain unpleasant surprises that may sideswipe the global economy once more, and it believes the strengthening loonie is not helpful given the Canada's dependence on exports. The report warns Canada's recovery is at best nascent and dependent on massive government stimulus and historic low interest rates to support domestic activities and consumer spending. But overall, the new outlook represents a clearly more optimistic view of the Canadian economy than Mark Carney, the governor of Bank of Canada, presented in April when he saw the contraction that began last October lasting at least until the fourth quarter of 2009, and the dip in the first month of this year breaking all records. The more optimistic view of the economy had an immediate effect on the Canadian dollar, which surged 0.97 cent to 92 cents US.
The Bank of Canada first indicated it was about to brighten its outlook on the economy on July 21 when it announced its decision to keep short-term interest rates unchanged. At that time, it said the economy would shrink by 2.3 per cent this year -- implying growth had already begun -- and expand by three per cent in 2010. On July 23, it said that economic growth "is now projected to turn positive in the third quarter (of 2009)." Mark Carney told reporters at a news conference after the release of the bank's monetary report that the recovery will be a "gradual" process." He said, "Global economic activity appears to be nearing its trough, and there are increasing signs that activity has begun to expand in many countries in response to monetary and fiscal policy stimulus and measures to stabilise the global financial system." He added, "However, this recovery is nascent, and to sustain global growth effective and resolute policy implementation remains critical."
This means that the downturn that cost the Canadians close to 400,000 jobs since October has ended, although the recovery will be modest by historic standards. The bigger bounce the bank is projecting starting this quarter does not change its overall view that it will take until mid-2011 for Canada's economy to return to full capacity. What is happening, say the economists in the bank's governing council, is that the Canadians are responding to low interest rates and growing in confidence by pulling the trigger now on such big-ticket items as houses, cars, furniture and appliances that they plan to purchase later. Still, Canada will do better than many other industrialised countries, the bank predicts.
The US has stopped shrinking, but is still not likely growing. And Europe and Japan may still be in recession. Next year, the U.S. will only rebound by 1.4 per cent, less than half of Canada's rate, and the European area by a mere 0.7 per cent. The strongest engine of growth globally is China, expected to rebound to 8.3 per cent growth next year, almost two points higher than predicted three months ago.
The Bank of Canada credits Canada's ability to grow out of recession quicker than it was earlier projected in April to some factors like a prompt bounce-back in commodity prices and the underlying strengths in the economy, including a relatively stable financial sector and households that were less indebted than in the United States. Besides, wage increases have remained relatively healthy at about three per cent annually than might have been expected given massive layoffs, falling inflation, and production cutbacks. The bank has claimed that some aspects of the economy, including overall financial conditions and household credit, have already returned to normal, boosting demand for new mortgages. This has helped shore up Canada's domestic economy. The bank also sees future improvements for Canada's export sector, which it says will disproportionately benefit from the U.S. recovery starting next year. Just as Canadian exports of autos and wood products were hardest hit during the downturn, they will be boosted more than other industries once demand returns in the U.S.
In the past, economies have bounced back significantly stronger than even the rosier forecast of the Bank of Canada. The bank said the recession has triggered such fundamental restructuring in many industries that going forward will not be as easy as it used to be in the past. The bank estimates the Canadian economy is currently operating 3.5 per cent below capacity.
The writer can be reached at email: GopalSengupta@aol.com
Twelve countries have best survived the global recession. These are: Australia, China, India, Singapore, Hong Kong, Canada, Japan, Qatar, New Zealand, Malaysia, Sweden and Vietnam.
There is a lot of hue and cry about economic slowdown in various countries. The slowdown in economy is primarily of two types -- depression and recession. Depression does have a longer time effect as compared to recession. Capital market experts treat recession as a healthy sign for a period of one to two years after a bullish phase of three to five years. So, why is so much hue and cry about a normal phenomenon which is bound to happen?
The Bank of Canada has declared that the recession is essentially over in Canada and projected that the country's economy will bounce back at least twice as strongly as in the United States. The bank said on July 23 that Canada's economy will grow by 1.3 per cent during the current July-September period, and by three per cent in the fourth quarter, both at annualised rates. The bank's quarterly monetary policy report makes some observations about how the world and Canada are coming out of the deepest and most painful downturn since the Second World War.
The bank remains concerned that the fragile financial systems in the United States and Europe may contain unpleasant surprises that may sideswipe the global economy once more, and it believes the strengthening loonie is not helpful given the Canada's dependence on exports. The report warns Canada's recovery is at best nascent and dependent on massive government stimulus and historic low interest rates to support domestic activities and consumer spending. But overall, the new outlook represents a clearly more optimistic view of the Canadian economy than Mark Carney, the governor of Bank of Canada, presented in April when he saw the contraction that began last October lasting at least until the fourth quarter of 2009, and the dip in the first month of this year breaking all records. The more optimistic view of the economy had an immediate effect on the Canadian dollar, which surged 0.97 cent to 92 cents US.
The Bank of Canada first indicated it was about to brighten its outlook on the economy on July 21 when it announced its decision to keep short-term interest rates unchanged. At that time, it said the economy would shrink by 2.3 per cent this year -- implying growth had already begun -- and expand by three per cent in 2010. On July 23, it said that economic growth "is now projected to turn positive in the third quarter (of 2009)." Mark Carney told reporters at a news conference after the release of the bank's monetary report that the recovery will be a "gradual" process." He said, "Global economic activity appears to be nearing its trough, and there are increasing signs that activity has begun to expand in many countries in response to monetary and fiscal policy stimulus and measures to stabilise the global financial system." He added, "However, this recovery is nascent, and to sustain global growth effective and resolute policy implementation remains critical."
This means that the downturn that cost the Canadians close to 400,000 jobs since October has ended, although the recovery will be modest by historic standards. The bigger bounce the bank is projecting starting this quarter does not change its overall view that it will take until mid-2011 for Canada's economy to return to full capacity. What is happening, say the economists in the bank's governing council, is that the Canadians are responding to low interest rates and growing in confidence by pulling the trigger now on such big-ticket items as houses, cars, furniture and appliances that they plan to purchase later. Still, Canada will do better than many other industrialised countries, the bank predicts.
The US has stopped shrinking, but is still not likely growing. And Europe and Japan may still be in recession. Next year, the U.S. will only rebound by 1.4 per cent, less than half of Canada's rate, and the European area by a mere 0.7 per cent. The strongest engine of growth globally is China, expected to rebound to 8.3 per cent growth next year, almost two points higher than predicted three months ago.
The Bank of Canada credits Canada's ability to grow out of recession quicker than it was earlier projected in April to some factors like a prompt bounce-back in commodity prices and the underlying strengths in the economy, including a relatively stable financial sector and households that were less indebted than in the United States. Besides, wage increases have remained relatively healthy at about three per cent annually than might have been expected given massive layoffs, falling inflation, and production cutbacks. The bank has claimed that some aspects of the economy, including overall financial conditions and household credit, have already returned to normal, boosting demand for new mortgages. This has helped shore up Canada's domestic economy. The bank also sees future improvements for Canada's export sector, which it says will disproportionately benefit from the U.S. recovery starting next year. Just as Canadian exports of autos and wood products were hardest hit during the downturn, they will be boosted more than other industries once demand returns in the U.S.
In the past, economies have bounced back significantly stronger than even the rosier forecast of the Bank of Canada. The bank said the recession has triggered such fundamental restructuring in many industries that going forward will not be as easy as it used to be in the past. The bank estimates the Canadian economy is currently operating 3.5 per cent below capacity.
The writer can be reached at email: GopalSengupta@aol.com