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Economic forecast predicts Canadians will get poorer in 2009


December 23, 2008
By The Canadian Press

Dec. 23, 2008, Ottawa – It's going to get worse. As bad as the past few
months were, even the rosiest of economic forecasts shows on average
Canadians will get poorer in 2009, and many – perhaps as many as
200,000 additional workers – will lose their jobs as the economic
recession deepens.

It's going to get worse. As bad as the past few
months were, even the rosiest of economic forecasts shows on average
Canadians will get poorer in 2009, and many – perhaps as many as
200,000 additional workers – will lose their jobs as the economic
recession deepens.

The economic tsunami that was well below the surface as 2008 began
hit Canada's shores with a crash in the fall and is only now washing
deeper inshore swallowing an economy that once appeared impregnable –
having withstood both the Asian financial crisis a decade ago and the
9-11 fallout in the United States.

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Prime Minister Stephen Harper
described it best in a recent television interview in which he perhaps
tellingly did not reject out of hand the possibility of a depression –
a deep economic downturn in which output shrinks by 10 per cent or more.

"I've
never seen such uncertainty … I'm very worried about the Canadian
econmy," he said, before explaining that governments had learned
survival lessons from the 1930s depression that they are applying to
the current situation.

But as Merrill Lynch's Canadian chief
economist David Wolf put it: "Given the events of the past few months
how can you rule anything out? Even us bears have been surprised at
just how aggressively things have unravelled."

A key lesson of
the Great Depression – and a reason economists believe the damage can
be contained shy of D-terrain – is that governments must not sit idly
by as the cancer spreads.

The U.S., Europe, China and others have
already stepped to the plate with Ruthian stimulus packages worth
trillions of dollars in total, and Harper has suggested spending
measures in the $20-billion range are being prepared for the Jan. 27
budget, at a price of a huge deficit.

As well, Ottawa and Ontario
announced Saturday that $4 billion will go into jump-starting the
battered Canadian auto sector, with more likely to come as part of a
North American industry restructuring.

The measures aren't
necessarily going to be popular with Canadians, although they are
likely a minimum condition for preventing a Liberal-NDP coalition, with
the backing of the Bloc Quebecois, from seeking to dump the government
once Parliament resumes in late January.

A Canadian Press
Harris/Decima poll conducted in mid-month found only 39 per cent
support for stimulus spending if it means Ottawa will go into deficit.

For policy makers, the deficit ship has long since sailed.

Even
sober-minded economists don't see much to shout about in keeping
government books in the black if it means the rest of the country
sinks. If everyone else is too scared to spend their last dime,
governments had better, they reason.

"Unfortunately it's
necessary. Things could be very ugly if policy makers don't step in to
support the economy, in certain cases specific industries," said Bank
of Montreal deputy chief economist Douglas Porter.

"It still
going to be the weakest year since '91," agreed Dale Orr, managing
director of IHS Global Insight. "The second half will be better than
the first, thank goodness, but we'll need another year after that
before we're back to the economy returning to potential."

Orr's
analysis is shared almost universally among private sector economists,
who have been busily revising even their bleakest forecasts in the past
few weeks.

Last week, the Bank of Nova Scotia set the standard
for low with a projection that the economy would shrink 1.2 per cent in
2009. A day later the Bank of Montreal did it one notch better at minus
1.3 per cent.

The shocker, however, is that most expect a seldom
considered statistic called nominal gross domestic product – which
measures the value of what the country produces – to become headline
news next year as the wealth-effect of high commodity prices over the
last six years gets reversed big time with oil in the tank and prices
of minerals, grains, coal and other commodities also in decline.

Many
are expecting nominal GDP to shrink by as much as three per cent in
2009, bringing lower corporate profits, lower government revenues and
most importantly, lower wages for Canadians.

"That's a shrinking of the economic pie the likes of which we really haven't seen for generations," said Wolf.

The
latest projections also predict Canada's unemployment rate will rise to
about eight per cent, from the current 6.3 per cent, resulting in
something Canadians also haven't seen in a generation, outright job
losses of 200,000 from the recession's peak to trough.

While the
jobless rise in 2009 will hurt, it's still a far cry from the last two
recessions. Unemployment hit 13 per cent in the 1980-81 decline, when
industrial North America – mainly the steel and auto sectors – went
through a painful restructuring. In the early 1990s the recession hurt
real estate and retail sectors and pushed the jobless rate to 10 per
cent.

How do we get ourselves out of this mess?

A recovery is coming, economists say, and it's likely from a combination of several factors.

Surely
some good must come from the trillions of dollars being poured into the
economy from governments around the world, they figure.

The other
bright spot – although it's cold comfort to Canada's oilpatch – comes
from cheap oil, which will cut business costs and leave more money in
the pockets of consumers around the world.

And then there's that
fickle measure called consumer confidence, which has been dining on
despair for months and sits at its lowest level in more than a quarter
century.

Orr believes much of the loss of trust and confidence
among investors and consumers stems from global markets'
stomach-churning bungee jump since mid-September.

In Canada, the
stock market has lost more than 40 per cent of its value since a
mid-June record high, wiping out hundreds of billions of dollars of
stock value and squeezing the investments of Canadians held in pension
plans, stocks and mutual funds. That has made people feel poorer and
tighten their wallets and companies from cutting investments and
expansion plans.

"Everybody is gloom and doom now, but things
could turn around quickly," Orr says. "Everybody is now waiting for
conformation we're at the bottom and if you can get a week or two of
really strong markets, there will be a piling on phenomenon and people
won't be able to wait to get back in."

But as he hurries to add, it might not be wise to bank on it happening in 2009.


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