Slow recovery leaves bitter taste, according to Desjardins Group economists

Markets will remain sceptical about a recovery

LÉVIS, QC, Sept. 20 /CNW Telbec/ - According to the Desjardins Group Economic Studies team, economic growth in the coming quarters will be nothing to crow about, especially in industrialized nations. The recovery is fragile, with a fairly high risk of a relapse. In such a context, financial market volatility is difficult to avoid. "Interest rates will stay very low until both investors and monetary authorities are convinced that the global recovery is on solid footing," stated François Dupuis, Desjardins Group Vice-President and Chief Economist.

Canada: In a class of its own

With a labour market that has recouped all its recession losses, a housing market that was not pummelled like in the U.S. and Europe, and a financial system that has proven its solidity, Canada appears to be living in a glass bubble. What's more, it's the only G7 country to have tightened monetary policy since the end of spring.

The housing market is cooling, and the impending winding down of government stimulus programs will temper growth. Canada's biggest weakness is probably exports. The course of the U.S. economy, combined with the current global uncertainty, should prompt the Bank of Canada to stop raising rates until next spring.

The gradual global recovery will fuel output in the resource-producing provinces of Western and Atlantic Canada, particularly as of the middle of next year. Despite a less favourable housing market, Ontario will still manage to grow 3.5% in 2010 and 2.6% in 2011. As the result of pressure to cut spending and a heavier tax burden for individuals, Québec will not be able to match that performance. The hike in the Québec Sales Tax (QST) and health contribution, as well as other fees will affect household expenditures. Real GDP growth is therefore expected to be a mere 2.7% in 2010 and 2.3% in 2011. "However, unemployment should end the year 2011 at 6.7%, a better performance than Ontario (8.4%) and the country as a whole (7.5%)," emphasizes Yves St-Maurice, Director and Deputy Chief Economist at Desjardins Group.

Not much in the way of good news for the U.S.

The second half of the year is much tougher for the world than the first, and the U.S. is no exception. At 2.6% for 2010 and 2.4% for 2011, the growth forecast reflects a labour market that is slow to bounce back, a housing market that is still in the throes of a profound restructuring, and households that are trying to get their financial affairs in order by saving more. "All this will make it hard for the Fed to justify a rate increase before 2012, particularly since inflation will remain subdued," added Mr. Dupuis.

Deep-seated pessimism among economic agents explains the sluggish growth in industrialized nations. There are still many hurdles to overcome before optimism returns. Only time will rectify the large imbalances in household balance sheets, public finances and current accounts. Consequently, the world's industrialized economies will grow around 2.0% in 2010 and 2011. Countries on the other side of the Atlantic are mainly responsible for this lacklustre performance.

Despite the weak performance from industrialized countries, global growth should reach 4.1% in 2010 and 3.8% in 2011. Emerging nations will make an invaluable contribution to world output, posting an average increase in real GDP of 5.9% this year and 5.5% the year after. China will be on top with 9.8% in 2010 and 8.9% in 2011.

Commodity prices to hold steady until 2011

Base metal prices should fluctuate without any overall trend until early next year. Oil prices will close the year at about US$75 per barrel and hit US$95 by the end of 2011. Just like resources, stock indexes will reflect a "wait and see" attitude on the part of investors. Consequently, the S&P 500 should close out the year down slightly (-2.3%) while the S&P/TSX will nudge up 0.5%. However, these indexes are projected to rise around 15% in 2011 as low bond yields and renewed investor confidence make stocks popular again. "That said, there may be some bumpy patches along the way," concluded Desjardins Group economists.

For more information, consult the most recent study at the following address:
www.desjardins.com/en/a_propos/etudes_economiques/previsions/financieres_trimestrielles/.

About Desjardins Group

Desjardins Group is the largest cooperative financial group in Canada and the sixth largest in the world, with assets of more than $173 billion. Drawing on the strength of its caisse network in Québec and Ontario, and its subsidiaries across Canada, it offers a full range of financial products and services to its 5.8 million members and clients. Desjardins specializes in Wealth Management and Life and Health Insurance, in Property and Casualty insurance, in Personal Services, in Business and Institutional Services. As one of the largest employers in the country, Desjardins is supported by the skills of its 42,200 employees and the commitment of over 6,200 elected officers. For more information, visit www.desjardins.com.

For further information:

Information (for journalists only):

Nathalie Genest
Advisor, Media Relations
514 281-7275 or 1 866 866-7000, ext. 7275

François Dupuis
Vice-President and Chief Economist
514 281-7332 or 1 866 866-7000, ext. 7322

Yves St-Maurice
Director and Deputy Chief Economist
514 281-7009 or 1 866 866-7000, ext. 7009