Invest in Canada

Revival may be underway – Summit was good for Canada

by investor on 03/04/09 at 1:49 pm

As Group of 20 leaders left London last night pledging to do “whatever is necessary” to get the world economy growing again, there is an emerging belief that a global recovery is already underway — and that the upswing may be as robust as the fall was dramatic.

This may explain why Mark Carney, governor of the Bank of Canada, was adamant this week that the extraordinary plans undertaken “will work;” that Canadians can manage their affairs “in expectation — rather than hope — of a recovery;” and that policymakers should “carefully” ponder further stimulus measures “with an eye to the scale” of what has been done to date.

No doubt, concerns remain, such as how de-leveraging is becoming a driving force in the global economy that is pulling down trade flows. This factor prompted Warren Jestin, chief economist at Bank of Nova Scotia, to downgrade his global outlook yesterday. He now envisages the global economy shrinking 2.2%, down 60 basis points from a month ago.

Others are more optimistic.

Craig Wright, chief economist at Royal Bank of Canada and among Bay Street’s most bullish analysts, said a number of U.S. economic indicators point to a recovery in the making — such as two consecutive months of gains in U.S. retail sales and the 8% jump in car sales in March.

“We are seeing signs that the deterioration is slowing, and people are getting more comfortable with the eventual pickup in activity — and the equity market is already there,” he said.

As it happens, the Toronto benchmark stock index yesterday hit a three-month high, and has surged nearly 20% in the past month alone.

Meanwhile, analysts at Barclays argue the gap between demand and output has hit an extreme last seen at the peak of the 1974 recession. This condition is not sustainable, they argue, and will lead to production levels being adjusted upward. That, in turn, will translate into higher levels of income and employment, and “a positive shock” to confidence in businesses and households.

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