OTTAWA — Such is the severity of post-recession malaise engulfing the world that CIBC's chief economist invokes Biblical comparisons to warn the end of the "famine" is years away.
"Akin to Pharaoh's dream for Egypt, the global economy could well be in the midst of seven lean years, as the debt-financed bounty of the prior expansion left a growth famine in its wake," Avery Shenfeld said in his year-end economic outlook.
The Pharoah's dream, contained in Genesis, portends seven years of prosperity followed by seven lean years. Now halfway though those leans years, which began with the recession in 2008, Canada, and the world around it, will be mired until mid-decade in a prolonged slump, Shenfeld said.
For Canada, that means unemployment will remain elevated, the dollar will drop, wage gains will be meagre and growth will be scant, Shenfeld and other CIBC economists say.
"As an open economy, Canada can't help but feel the disappointment of a barely half-speed world. Excepting Europe, we're not destined for recession, but global growth will barely top three per cent next year, and 2013 won't be a whole lot better, well below the bounteous five per cent pre-recession pace."
"The countries in Europe that have been first to tackle budget deficits through tax hikes or spending cuts have paid the price in growth. That same malaise is spreading to other European countries, he says, and its echo will be felt as governments pull back from stimulus in North America."
Even that sombre outlook assumes "intelligent policy making" in Europe will prompt aggressive action to keep its downturn from worsening.
Shenfeld has lowered his forecast for growth in the Canadian economy in 2012 to two per cent from 2.1 per cent, and predicts that will extend through 2013.
As a result, Shenfeld has drastically revised his outlook on when the Bank of Canada will resume raising interest rates, saying the central bank will now hold rates at the current one per cent for the next two years. The previous call was for rate hikes to resume in the second half of 2012, with two quarter-point increases through year end.
Labour markets will also suffer. In a separate CIBC report, economists Benjamin Tal and Emanuella Enenajor, say tepid U.S. growth and a recession in Europe will hinder any Canadian jobs turnaround, and that a monthly pace of only 10,000 hires per month should send the unemployment rate from the current 7.4 per cent to 7.7 per cent by mid-year.
Meanwhile, the dollar will dip to 92 cents U.S. by early summer. Shaky global markets will hurt the resource-linked loonie before it returns to parity by year-end as global crisis fears diminish, Shenfeld said.
A key source of Canada's weakness ahead is the U.S., Canada's largest trading partner, where even deeper fiscal restraint than in Europe will land in 2013, and growth will only inch ahead at 1.9 per cent for the next two years, the CIBC reports said.
"It might not be until closer to mid-decade that we start to see enough private-sector momentum, including a full rebound in home building, to allow the U.S. economy to accelerate to the four-per-cent-plus growth rate needed to materially bring down the jobless rate," said Shenfeld.
On the Canadian housing front, Tal said prices will level off over the next two years and then drop by 10 to 15 per cent as eventual rate hikes kick in.
In the midst of all that gloom, there are some positive points. Our two-per-cent growth rate will outpace all but one of Canada's G7 peers, say Tal and Enenajor.
Meanwhile, business spending on construction and equipment, including several private-sector megaprojects will guard against recession risks in Canada, while consumer spending is expected to "brave the economic headwinds."
Read more: http://www.ottawacitizen.com/business/Economist+warns+global+slowdown+will+Biblical+scale/5831205/story.html#ixzz1g2zO804Q
No comments:
Post a Comment