2010: A realistic odyssey

Canadians are generally optimistic about the economy in 2010. According to POLLARA’s survey of more than 4,200 Canadians, 54% expect that the Canadian economy will improve this year, compared with only 20% in 2009, said Michael Marzolini, chair of POLLARA, speaking at the Economic Club of Toronto (ECOT) recently.

But while Canadians might be optimistic, economists from the five major banks, meeting for the eighth consecutive year at ECOT, were a little more realistic.

Don Drummond, chief economist of TD Bank Financial Group, said global imbalances are worse now than they were before and governments have high debt levels. “Canada still has about 25% to 35% debt,” he said. “That’s a tough debt to get out of. It’s a huge uncertainty and needs to be addressed quickly. This is the recession that will go on giving.”

“The U.S. economy remains on life support,” said Sherry Cooper, chief economist of BMO Capital Markets. She said the U.S. will face modest economic recovery with growth averaging about 2.6%.

“The recovery will be subpar and suspect because unemployment levels are high,” she said. “The boomers have been overrepresented in the jobless lines.”

Similarly, Canadian consumers will be keeping an eye on employment, said Craig Wright, chief economist of RBC Financial Group. “In the last four or five months we’ve had gains. The great recession basically translated into a crisis of confidence, and as employment returned, so did confidence.”

In fact, Canadians are feeling better about employment. Forty-three percent feel that employment will improve in 2010, compared with 12% in 2009. And only 22% feel the employment situation will get worse this year, compared with 68% last year.

Wright said consumer spending will pick up and interest rates will likely remain low for the first half of the year. He also sees continued strength in the Canadian dollar.

Warren Jestin, chief economist of Scotiabank, said that in the second half of the year, the developed world will settle into a growth trend that will be slower than expected. “Canada and the U.S. will be relegated to growth rates of 2.5%, while China India, Chile [and] Peru will be a multiple of that.”

Jestin said the opportunity for growth will come as a result of plugging into the emerging world, and investing in businesses that can tap the aging population.

To markets, to markets While growth will be slow, Avery Shenfeld, chief economist of CIBC World Markets, said that investors may make money in the stock market in the first half of the year, but there’ll be downgrades in the latter half. He said the bond market will be safe with a slowdown in the market and some bumps in the second half of the year. It’s not the best of times, it’s not the worst of times, said Shenfeld, but “maybe it’s not a bad time to be investing these days.”

(01/07/10)