“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”
– Laurence J. Peter
With the new year comes new economic predictions, and Canada’s big banks are out in full force – dusting off their crystal balls and attempting to determine what’s in store for Canadians in 2010. To help determine their credibility, below is a list of their 2010 predictions contrasted against their 2009 forecasts.
CIBC
Looking ahead (2010 Predictions):
“We’ve lifted our first-half growth forecasts materially for both the U.S. and Canada to the 3 1/2 per cent range,” says Chief Economist Avery Shenfeld in the bank’s latest Economic Forecast report. “Heroic rescue efforts have clearly paid off. While those still in the ranks of the unemployed might not see it that way, record low interest rates and huge fiscal stimulus around the globe brought both economies and financial markets back from the brink.
“That has the North American economy entering 2010 like a lion. But recoveries are rarely a smooth road, and this one faces a huge speed bump beyond the next couple of quarters. The fading benefits of these measures,
and the lingering hangovers from the past two-years’ turmoil, will see us exit like a lamb.”
Looking back (2009 Predictions):
Despite a steady stream of bad economic and financial news, 2009 could prove to be a happier new year for investors. “A winter of our discontent is in store, and spring may not yet see any improvement,” says Avery Shenfeld, senior economist. However, financial markets “are starting to look ahead to a better, if not yet glorious, summer.”
RBC
Looking ahead (2010 Predictions):
After a challenging and difficult year, the Canadian economy is set for a nation-wide recovery in 2010, according to a new report by RBC Economics. The report indicated that although the Canadian economy contracted at an average of 2.5 per cent in 2009, the stage is set for a return to positive growth in 2010.
“With the financial crisis behind us and the U.S. economy on the mend, Canada’s economic growth is expected to rise steadily throughout the next year,” said Craig Wright, senior vice-president and chief economist, RBC. “While challenges remain, a peak in stimulus and infrastructure spending across the federal, provincial and municipal governments, along with low interest rates, should result in a sustained recovery.”
In the near-term, with interest rates likely to remain low and the supply of homes available for sale relatively limited, RBC does not expect to see a sharp drop-off in sales activity. In the second half of 2010, however, the combination of higher mortgage rates and higher prices are likely to take some steam out of the market. In 2011, conditions in the housing market are likely to be relatively stable as the strengthening economy leads to job and income growth, which will offset some of the effect of the steady rise in interest rates throughout the year.
Looking back (2009 predictions):
“The U.S. economy has fallen into a deep recession that will likely push the Canadian economy into recession as well,” said Craig Wright, senior vice-president and chief economist, RBC. “However, we expect the slowdown in Canada not to be as severe as in other countries since the imbalances plaguing other countries are more pronounced. We expect to see a moderate, though sustained, recovery in the second half of 2009.”
The recent slide in housing prices and sales comes after six years of solid gains and has knocked prices back to the level of late 2006. This has resulted in an improvement in affordability after a sustained period of steadily eroding conditions. While the supply of unsold new homes remains well contained, the weaker tone in sales will likely see builders cut back construction activity in 2009, with housing starts expected to fall by about 42% compared to their recent peak level. While this sounds like a hefty cut, it compares favourably to the significant weakening in U.S. housing starts which fell to the lowest level on records back to 1959 in November.
BMO Financial
Looking ahead (2010 predictions):
• We look for both Canada and the U.S. to post GDP growth of roughly 2.5 per cent in 2010, essentially reversing similar declines in the prior year.
• The era of zero interest rates will come to an end just after mid-year in Canada and not soon afterwards in the U.S. However, borrowing costs will remain exceptionally low by historical standards, as major central banks will wait until it is absolutely certain that recovery has taken root before hiking aggressively.
• The Canadian dollar is likely to strengthen further and could average close to parity in 2010, bolstered by Canada’s relatively favourable fundamentals, underlying uncertainty on the U.S. dollar, and firming commodity prices.
• The housing market will continue to thrive in Canada, while the U.S. market will see the first inklings of recovery. The spring selling season could be exceptionally hot in Canada ahead of the new HST in B.C. and Ontario, and in anticipation of interest rate increases later in the year.
• Despite the unfolding recovery, the scars from the deep global recession will linger in many areas, including a still-high jobless rate (averaging 10 per cent in the U.S. and 8.5 per cent in Canada next year), still-wide budget deficits almost everywhere, and a lack of pricing power for businesses. The good news is that despite widespread concerns on this front, inflation is expected to remain quite subdued, averaging 1.5 per cent in Canada and about 2 per cent in the U.S. in 2010.
Looking back (2009 predictions):
• The global recession will extend through the first half of 2009 as the credit crisis runs its course, before growth recovers modestly in the second half of the year.
• The US faces its worst recession in the post-war era as consumers strive to rebuild savings amid unprecedented wealth destruction. An expected modest recovery starting late in the year depends on an expected sizeable fiscal stimulus plan.
• Canada will suffer its first recession in 17 years as a result of falling exports to the US and declining investment in the resource sector amid plunging commodity prices. A modest recovery should begin in the second half of the year, supported by a likely stimulative federal budget and previous deep interest rate cuts.
• The Fed is expected to keep overnight rates near zero in 2009. Meantime, the Bank of Canada is expected to reduce overnight rates to new half-century lows.
• The Canadian dollar could weaken a bit further to below 80 cents in the first half of 2009 as commodity prices remain under pressure, but is expected to rebound above 85 cents later in the year.
• The global economy may grow by just 1 per cent in 2009, marking the slowest year for global growth since the early 1980s.
• We look for oil to average US$45/barrel in 2009.
