The great recession of the decade is behind us now, according to top Canadian economists. But Canadians are being warned there's little relief ahead.
A report put out by TD Economics on Dec. 17 predicts the world economy will expand by about 4 per cent by the end of 2010.
In Canada, the projected growth is about 2.7 per cent - not exactly a significant spurt from the 2.5 per cent growth the country recorded in 2009, when the recession was in full force.
Third-quarter financial reports show the Canadian economy only grew by 0.4 per cent in the last year. That means the average Canadian won't see much change in their financial situation, said Don Drummond, the senior vice-president and chief economist with TD.
"Canadians will see minimal gains going forward," he told CTV.ca in a telephone interview.
Though the U.S. also posted a forecast of 2.7 per cent GDP growth, Drummond said that the Canadian recovery is much different than the one our American neighbours will experience.
"Canada did not have to go far to go up," he said "The U.S. fell further (during the recession). It had nothing to spring back from."
For the average Canadian
Drummond said some sectors in the U.S. will see triple gains. Canada likely will not.
For example, the U.S. will likely see a bigger drop in the country's unemployment rate than Canada will. More than seven million jobs disappeared in the U.S. during the 23-month recession, while Canada lost about 414,000.
"Employment (numbers) will increase but the gains won't be robust," said Drummond. "Workers should not expect large wage increases. Most people will be fortunate if they see an increase of 2 per cent."
Homeowners looking to sell their property will be among the luckier Canadians as they will continue to see the value of their house increase, Drummond said.
Real estate in cities across Canada continues to be a hot commodity whereas the housing market in the U.S. continues to be flooded with homes whose owners have defaulted on their mortgage payments.
But despite the strong Canadian market, homeowner were given a strict warning in early December from Bank of Canada governor Mark Carney about taking on too much credit.
He said Canadians were taking advantage of low interest rates and borrowing at a high rate. He warned banks and homeowners about the consequences they could face in the event of an interest rate increase.
"The combination of sustained growth of household debt relative to income and a rising interest rate environment could increase the vulnerability of households to an adverse shock," Carney told a business audience in Toronto.
There is already some indication that Canadians are mismanaging their debt, he said,
noting personal bankruptcies went up by 41 per cent between July and September, reaching records that were previously seen during the recession of the early 90s.
Uncertain, but steady recovery
Still, government stimulus packages coupled with low interest rates should make for a steady recovery, according to RBC Chief Economist Craig Wright.
"While challenges remain, a peak in stimulus and infrastructure spending across the federal, provincial and municipal governments, along with low interest rates, should result in a sustained recovery," he said in a Dec. 14 report that confirmed Canada as the leading country in the G7 for economic growth.
Drummond was more cautious in his projections, warning Canadians about more uncertainty ahead.
He said governments will be doing a two-step dance, honouring commitments to get previously announced projects off the ground while planning to reserve their spending for the next few years.
Money will be given to infrastructure projects in particular, as they will stimulate job growth, he said.
In Canada, Ontario appears to be among the hardest hit provinces, and will likely have to cut spending the most.
"They will clearly be hard on spending restraints," said Drummond. "We are already reading about (the Ontario government) considering selling their assets."
A number of risks to the recovery were outlined in the TD economic report:
- Central banks must tread carefully when they begin to cut back their stimulus initiatives or risk reversing the progress that has already been made
- Fiscal authorities around the world must take the right steps in re-establishing credibility when tackling growing deficits and debt with regulations. If the regulator's timing and approach isn't right, the trickle-down effect could be disastrous.
"In many ways, successfully negotiating economic recovery is a bit like a Goldilocks scenario," Drummond says in the report. "It can't be too hot or too cold -- it's got to be just right. But it would be foolish not to keep in mind the various risks involved.
"Analysts and investors will need to be fleet of foot to adjust to evolving circumstances and risks," he said.
