Tuesday, September 20, 2011

Economic Outlook

Last week the Economic Club of Canada hosted a breakfast with a panel of economists from the Big Five Canadian banks.    On the panel were
  • Avery Shenfeld, Chief Economist, CIBC World Markets
  • Derek Burleton, Deputy Chief Economist, TD Bank Financial Group
  • Craig Wright, Chief Economist RBC Financial Group
  • Sherry Cooper, Chief Economist, BMO Capital Markets
  • Warren Jestin, Chief Economist, Scotiabank
All the forecasts were made against a backdrop of extreme political uncertainty, which complicated forecasting to an unusual degree.  The forecasts were all pretty gloomy - surprise, surprise.

The main themes that were common to all the forecasts were as follows:
  • It's going to be a long, arduous, painful recovery.  The US economy is a car with a broken transmission.  When your transmission is broken, it doesn't matter very much how much gas you give it, it's not going anywhere.  Growth estimates were low, 1.5%-2% for US and 1.5% -2.5% for Canada.  The IMF today released a forecast that the Canadian economy would grow 2.1% this year and 1.9% next year, which is way down from its April forecast of 2.8% and 2.6% last April.
  • There's a risk of a short term pause or stall, and a 25-50% risk of short term recession. 
  • Emerging markets will continue to grow.  This led to forecast of growth internationally at 3.5%.
  • Canada is not an island.  We will outperform the US, but we are not insulated from what happens in the world, so our growth will also be stunted.
  • We're going to see low rates for longer than the economists had originally forecast.  It will be mid 2012 or even 2013 before Canadian rates rise, and perhaps 2014 before they start rising in the US.  There's a risk for Canada getting too far in front of the US.

1 comment:

Rohan Jayasekera said...

The forecasts aren't actually that gloomy if they all include "recovery". Some others expect things to get worse not better, and clearly none of these economists expect any such thing.

Maybe they should, though. If a car with a broken transmission can't go anywhere, how can it possibly produce 1.5%-2% growth? This is what Arthur C. Clarke called "failure of nerve": an unwillingness to draw logical conclusions.