Title: Bullish on 2010
Sub-title: After shrinking during 2009, economists say that next year Canada’s economy should return to positive growth. More Canadians will find work and disposable incomes will rise.
Each year-end, business, government, and NGO economists scramble to assess how things went during the period, and to predict what will happen during the next. Two thousand and ten is no exception. Last week members of the Association of Quebec Economists got together at Montreal’s Intercontinental Hotel to hear the opinions of some of the top experts in the field on the subject.
The good news for housing sector stakeholders is that optimism abounds. “We are more bullish right now than we have been at any time during the past three years,” said Yannick Desnoyers, assistant chief economist at National Bank Financial. “The liquidity that has been pumped into the system by the world’s central banks is starting to take effect and we are now seeing a synchronized global recovery.”
Pascal Gauthier, an economist at TD Bank Financial Group agreed. Though the Canadian economy will shrink by more than 2.0 percent during 2009 as a whole, growth picked up as the year drew to a close, a trend that should continue. “The recession technically ended for most countries during the third quarter of 2009,” noted Gauthier. “Furthermore, we expect positive growth during 2010.”
Many economists are optimistic about 2010
Desnoyers, who is among the more bullish economists right now, predicts that Canada’s economy will grow by 2.8 percent in real terms (with the effects of inflation taken out) next year. That may not sound like much, but after a year in which Canada’s gross domestic product is estimated to have shrunk by 2.2 per cent, it’s not bad.
A big part of the optimism regarding 2010 stems from the improving jobs picture. Early in any economic recovery cycle businesses tend to start to ramp back up production by squeezing just a little more out of existing employees, even if this means they have to pay out overtime wages. But once employees get stretched to the max, the only way to further boost output is to add on staff. That is what economists are hoping is starting to happen right now.
For example after losing 43,200 jobs in October, the Canadian economy created an impressive 79,100 new posts last month, a much stronger than anticipated advance. The internal data of the labor market survey were also quite impressive. For example nearly 32,000 workers abandoned self-employment (which many Canadians grudgingly accept as a substitute for regularly work) in order to take full time jobs. In addition, the country’s unemployment rate fell from 8.6 percent to 8.5 percent.
South of the border the picture was also quite good. Although the U.S. economy lost 11,000 jobs last month, this was the best performance in also two years, and many observers feel certain that a return to full time job creation in the United States is imminent. This in turn would almost certainly spur demand for Canadian products and would further spur job creation here as well.
Productivity is key
Yet while almost all economists agreed that Canada’s GDP will grow next year, what happens over the medium term will be more problematic. According to one economist, productivity, which has been surging lately, is key. “During the coming years, the slowing growth in the workforce across Canada, coupled with the ageing population could weaken economic growth,” said Hélene Begin, senior economist at Mouvement Desjardins, the country’s largest credit union. “That means if we want to increase our prosperity, we will have to improve productivity.”
Begin suggested five areas in which productivity performance could improve: business innovation, research and development spending, capital investments, education and a modernized regulatory structure.
If all of those economists are right that Canada’s gross domestic product will turn around during 2010 as a whole, then big question for housing sector stakeholders is what will happen to interest rates, one of the key drivers of housing demand. Last week, the Bank of Canada announced that it was keeping its bank rate flat, a policy that it promised to continue until the middle of next year.
If the central bank keeps maintains that commitment, during a time of a recovering economy and strong job creation, the conditions would all be in place for a significant upsurge in demand for new and existing homes.
Peter Diekmeyer is a Montreal based economics writer.
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