Canada could still be sideswiped: BMO

Canada escaped the recent economic downturn relatively unscathed as it had a short and shallow recession leading to a speedy recovery, says Paul Taylor, chief investment officer, BMO Harris Private Banking, Toronto.

He was hosting a conference call themed ‘Dealing With Recovery’ which addressed a variety of topics related to the fragile global economic recovery, particularly that of Canada.

“Canada arguably participated less meaningfully in the economic downturn so we had a shallower recession, more limited in terms of duration, and we’ve come out of it faster,” said Taylor.

He said economic conditions are “significantly better here than south of the border.”

Meaningful job growth and the strengthening housing market are two major sources of strength for the Canadian economy, he said.

“(Canadian) job growth is different from the U.S.,” he said. “(The U.S.) job growth is just turning positive and starting to gain momentum; we’ve been there for a quarter or more.”

Another source of optimism is the strength of the domestic housing market which is much stronger than it is south of the border, he said. “Housing being a key part of the Canadian individual balance sheet, (a briskly growing domestic housing market) has provided some strong psychological gain for consumer behaviour.”

He said the new-found strength of the loonie is not lost on foreign investors. “We are seeing some meaningful inflows of institutional investor dollars to the Canadian market.”

Taylor asserted that in spite of the current speed bumps on the road to economic recovery “Canada will have a stable credit environment and the current sovereign credit risk issues will ultimately prove to be manageable.”

“We will have a sustainable economic recovery and there we’re looking for a public to private sector hand off,” he said.

Removal of excessively stimulative monetary policy, he said, would have implication for the domestic market. “Over all the markets perceive the removal of excessive monetary stimulus to be prudent.”

He raised concern about the ongoing situation in Europe and conceded that Greek debt crisis is having a negative impact on equities in Canada. “The premise for any equity market rally is a stable credit environment,” he said. The knock-on effects of Greece’s economic problems, he said, have sailed to the Canadian shore.

“Obviously, the Canadian equity market has been weak the last few trading sessions,” he said. “We are watching it closely. We are all saying our prayers (hoping) there is a credible plan for the European Union — not just Greece but also for other peripheral countries that have some significant funding issues.”

He said the fear of financial collapse hanging over Greece was the only “monkey wrench in the system.” Those watching the Canadian economy closely are “very nervous” and are “hoping there is a happy outcome.”

He said if that fails, “all bets are off.”

(05/07/10)