Investors tired of the Eurozone: Desjardins

Investors’ patience is wearing thin as the unstable global economy continues to threaten their assets and investments, says a Desjardins Group Economic Studies team.

And uncertainty about the ability of political and financial authorities to resolve the crisis has continued to escalate.

“It would be overly optimistic to think that the global problems of public and private debt will be resolved quickly,” says François Dupuis, Desjardins Group vice-president and chief economist. “But, patience is in order.”

Dupuis suggests advisors remind their clients that investments remain healthy in Canada, and that our economy is expected to grow by 2.1% in 2012 and 2.4% in 2013.

Read: Investors say yes to Canada

Canada also has a considerable asset: major commodity reserves that are benefiting from sustained global demand, and this enthusiasm has allowed non-residential investment to post a ninth straight quarter of growth in early 2012.

Unlike most industrialized countries, our housing market maintains a good pace of growth. But, “these two sectors that are supporting the Canadian economy are also those that carry the greatest risks,” says Yves St-Maurice, senior director and deputy chief economist at Desjardins Group.

The fight against deficits continues in Canada and the provinces, slowing government spending. The trade balance will remain the Canadian economy’s weak link, with exports struggling to offset the heavy imports required by business investment.

Read: Global woes pull at Canada

The Canadian dollar’s temporary pullback to around US$0.97 is one factor in exporters’ favour. If global financial market tensions ease, however, the loonie will quickly return to parity.

Ontario’s real GDP growth should come in at 1.8% for 2012 and 2.1% for 2013. In this province, concern is primarily focused on the booming Toronto condo market.

As for the Western provinces, they will all post growth above 2.0% in 2012. Alberta will head the pack driven by energy sector investments, with growth of 3.5% in 2012 and 2013.

The forecast for global growth is established at 3.1% for 2012 and 3.7% for 2013. Emerging nations will see their real GDP growth drop from 5.7% to 4.8% this year, but will regain some momentum in 2013, possibly reaching 5.5%.

Europe’s economic environment continues to weigh on global markets and performance, with countries in the Eurozone struggling under the austerity programs needed to clean up their finances.

Read: Europe needs support, says Manuel Barroso, but Flaherty holds back: G20

The jobless rate for youth in Spain and Greece is seen as a national catastrophe, and the Eurozone’s real GDP is expected to contract by 0.5% this year, followed by a 0.7% recovery next year.

The U.S. hasn’t stabilized or accelerated its moderate growth as yet. The job market is weak and the economy is 70% dependent on consumption of goods and services.

“The ongoing imbalance in the housing market, the hampering of exports hampered by an unfavourable global economy, and unconvincing growth in business investment mean the U.S. economy will have a hard time posting growth better than the 2.1% forecast for 2012 and 2013”, says Dupuis.

As a result of global woes, central banks are keeping their policy rates extremely low. The Federal Reserve should wait until late 2014 before it starts to raise its Federal Funds rate, but until then, it has introduced further stimulus measures.

Ongoing global financial market tensions will keep downside pressure on U.S. and Canadian bond yields. The flight of capital to safe-haven securities will limit potential gains of more risky investment vehicles.

“Oil prices should hit an average of US$94 a barrel this year, and US$96 next year”, concluded Desjardins Group economists. Financial Times reports that crude oil prices fell on Wednesday to an 18-month low, and are indeed approaching the $90-a-barrel mark. Many investors are dumping commodities due to economic worries and fears.