Modest economic recovery continues, GDP expected to expand next year

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TORONTO - Economists are cautiously optimistic that "recession" will no longer be a prominent phrase in the Canadian vocabulary in 2010 as the economy trudges out from its second-worst annual decline in nearly half a century.
But growth in 2010 will be modest and unemployment will likely remain high.
Statistics Canada reported Wednesday a modest 0.2 per cent month-over-month growth in real gross domestic product in October, leading many economists to believe growth in the last quarter of 2009 could reach as much as four per cent.
For next year, they predict growth of about 2.5 per cent, average by historical standards after a recession and not robust enough to make much of a dent in the 8.5 per cent unempooymeht rate as more people enter the wokforce.
The recovery is largely being fuelled by activity in the real estate sector, which rose 7.2 per cent in October in a strong market for existing home sales.
Retail and wholesale trade and some tourism-related industries also showed growth, while the finance and insurance sector slipped. Goods-producing industries grew 0.1 per cent, with gains in utilities and construction.
CIBC World Markets economist Krishen Rangasamy said the October numbers did not reach the 0.4 per cent he had predicted, largely because of slips in mining and manufacturing.
But he said the expansions in September and October still put Canada on track towards achieving a GDP growth rate of four per cent in the final quarter of the year.
Rangasamy added that output expanded in October for the fourth time in five months, suggesting that the recession is "now well in the rear-view mirror."
Increased retail sales in the past couple months have been consistent with November gains in employment, he said, adding that increased consumer confidence will drive holiday spending higher.
"When the labour market fares well, good things tend to happen because consumers have more money in their pockets and they spend more."
Douglas Porter, deputy chief economist with BMO Capital Markets, says four per cent growth for the fourth quarter of 2009 might be too optimistic. He predicted growth would be closer to three per cent, after receiving less than impressive early results from November.
Porter added that following modest growth in the third quarter, three per cent growth in fourth quarter would be enough to declare the recession officially over.
"That would pretty much do it, if you end up with two full quarters of growth, that pretty much ends it," he said.
BMO forecasts that Canada's economy will post GDP growth of 2.6 per cent next year, which hovers close to growth in an average year as well as consensus for 2010 growth in the banking industry.
Meanwhile, the Bank of Canada's forecast growth rate of three per cent is at the higher end of that spectrum.
If growth expands at the median rate economists are predicting, it would essentially reverse the 2.5 per cent decline seen this year.
In 2009, Canada saw the second worst economic decline it has faced in the past 50 years, with only 1982's recession faring worse, Porter said.
Millan Mulraine, an economic strategist at TD Securities said that although the economic recovery is fragile, Canada is already out of recession.
He said the economy will fare much better in 2010 than in 2009 and expects at least a three per cent year over year growth for 2010.
"That would suggest that not only are we away from the recession but we've retraced some of the lost ground that the Canadian economy experienced during the recession."
Even with a three per cent gain, economic growth would still be below 2007 levels, Mulraine said. However, that would at least leave the economy close to where it was before, as if recession hadn't happened.
But with thousands of people still out of work and an unemployment rate of 8.5 per cent, it's difficult to imagine the recession never happened.
Despite the growth, the Bank of Montreal is predicting the jobless rate will still average 10 per cent in the United States and 8.5 per cent in Canada next year.
But Mulraine said that over the next few months, there will be a significant pickup in the labour market and Canada could see close to a quarter of a million jobs added by the end of next year.
"That will take us close to the pace of job losses - we've lost about 300,000 jobs so far - and (we) will have retraced most of that by the end of next year."
Finance Minister Jim Flaherty said Tuesday he is optimistic the Canadian economy has stabilized and will experience moderate growth next year.
Flaherty said he is seeing enough evidence that the economy has weathered the recession that he is sticking with his plan to end the $46.6-billion stimulus program as planned in the spring of 2011.

Organizations: Statistics Canada, BMO, CIBC World Markets Bank of Canada TD Securities Bank of Montreal

Geographic location: Canada, TORONTO, United States

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