Canadian Economy: Recovery taking hold, based on RBC Economic Outlook Webinar

Provided below is a summary of today’s ‘Economic Outlook 2010′ webinar hosted by Canadian Business featuring RBC Chief Economist, Craig Wright.  For more information, visit www.canadianbusiness.com/webinars

Economic Outlook 2010 (Abridged Summary Notes)

OCTOBER 30, 1:30 pm-2:30 pm, EST

To begin,  RBC is taking an overall view of “cautious optimism” towards the economy

• This was not a recession made in Canada, so we need improvements globally and in the US (where the recession began). We expect to see fiscal policy and low inflation and low interest rate will help lift us out of this economic recession.

Our growth is dependent mainly on other factors:

• Global financial market stability
• We can see this in key indexes such as the Volatility Index, TED Spread, Borrowing Cost, and Credit Standard that stability is coming back.
  • Global growth & global economy improving
    • We see an improving tone, Decline of 1.5%. Outlook has stabilized and outlook for next year has improved significantly. Continue to revise higher (3-3.5% growth range). We expect that global growth will be lead by emerging economies.
  • Recovery based on the condition that authorities make the right exit-strategy, but of course there’s a risk that errors are made and they pull out too early before a full recovery, creating a possible double dip in the economy.

Looking Ahead – and caveats in our economic recovery

The Canadian Outlook in detail

• The Canadian dollar expected to rise. We are looking at a strong Canadian dollar becoming a norm. RBC’s guess is that we’ll remain at the high 90s. Some of this is due to overall US weakness.
• The Canadian dollar moves closely with commodity prices historically, so this poses challenges across provinces. We’ve seen this strength in the Canadian dollar before so businesses may be used to it. This creates Challenges for exporters, huge positives for importers (for both consumers and businesses).
• The overall financial condition in Canada has improved significantly (interest rates, equity markets, easing equity conditions). Conditions look accommodative for recovery and modest growth.

Unemployment:

• Employment is on the decline, but the decline is slowing. To a degree it’s going to be lagged to economic recovery. Firms are cautious and wants to make sure  before hiring full time staff.  Existing workers are under strain to work harder before firms decide to invest in hiring.
• The unemployment rate pleasantly surprised us in September – We think the unemployment rate has yet to peak still, at 9.2%.

This recession is shorter and more moderate than the last 2 recessions. The fundamentally strong position Canada holds being structurally sound has insulated us to the weakness, although Canada is not immune, but leaves us in a strong position to recover.

Questions and Answers:

Q: Is there a future in manufacturing in Canada?

There is, although the size of the overall economy will become smaller. This is a trend in most G7 countries, fairly steadily downward. We’ve seen export of manufactured goods go down, especially from US. challenges creating our strong dollar, low wages in other markets, etc. But we will see a future for manufacturing.

Q: Has the Olympic lifted economy in BC?

Yes to some degree, its accelerated investment projects. Yet we’re seeing a slump right now in BC, and harded pressed to see another slump. We’re looking for a recovery and BC is no exception. BC is going to be part of the growth. Tourism will get a lift for BC and also all of Canada during the actual Olympics.

Q: Expected consumers Q4/holiday spending

• Expect more moderate spending still, consumers still concerned and in shock.
• Overall employment has pleasantly surprised us and housing markets have also improved (this is based on consumer confidence partly).
• We may also see that the stronger dollar will mean cheaper products which may help the spending.