Greenhouse Canada

More economic pain expected in 2009

January 8, 2009  By David Friend The Canadian Press

Jan. 8, 2009 – Canadians should brace themselves for another year of economic woe that
could even top the misery that unfolded in the latter half of 2008,
according to some of the country's leading bank economists.

Canadians should brace themselves for another year of economic woe that
could even top the misery that unfolded in the latter half of 2008,
according to some of the country's leading bank economists.

The flood of dire financial challenges facing the United States is
still working its way steadily through the border into Canada, TD Bank
chief economist Don Drummond told a gathering at the Economic Club of
Toronto today.


"We shouldn't really be thankful for the end of
2008 because I think (it) will have proven to be a better year than
2009," he said.

"We'll have a rough fourth quarter, but it'll
really hit in Canada in the first quarter, and we'll start to see a lot
more variables that look somewhat like the United States."

dramatic economic decline will likely push Bank of Canada Governor Mark
Carney to further slash interest rates, to as low as 0.5 per cent, in
an effort to fend of deepening economic problems, suggested Avery
Shenfeld of CIBC.

"The Bank of Canada has been aggressively cutting interest rates and has more to do."

However, he added that "going all the way to a zero interest rate might
not be necessary, given that we're going to get the stimulus from both
the U.S. actions and fiscal policy, and we also have a cheaper dollar."

Last month, the central bank slashed a key interest rate to 1.5 per cent, its lowest level in half a century.

The bank economists focused especially on the world economy, and how
what started as an U.S. economic slowdown has relentlessly expanded in
recent quarters.

"There is no question that the current situation is without precedent," said Bank of Montreal's Sherry Cooper.

"It is global, it is affecting sectors around the world and there is no place to hide."

Cooper suggested that the U.S. will experience its worst gross domestic
product results during the fourth quarter, even though its recession
will likely continue until late 2009.

In Canada, the global
economic meltdown will continue to affect the country for at least the
first half of the year before it returns to growth, which will even
then be lower than normal, the economists agreed.

Cooper said she believes government policies and monetary stimulus will bring the country out of a recession.

"At the end of the day will have outperformed much of the rest of the world, certainly the rest of the G7," she said.

Critics have questioned whether Ottawa should cut taxes as part of a broader effort to stimulate the economy.

On Tuesday, Finance Minister Jim Flaherty made it clearer that an
economic stimulus plan would likely include tax cuts to encourage
retail and other spending.

"My hope is that if we do get a tax
cut it is not just temporary," Drummond said, noting that temporary tax
cuts just tend to shift the timeline on when Canadians decide to make
big ticket purchases.

"If we're going to see any tax relief in the name of aiding the economy, we have to see something permanent."

Scotiabank's Warren Jestin highlighted that the downturn has affected nearly everyone.

"There's a remarkable synchronicity going on amongst countries and across markets," he said.

"All major industrial economies will be in recession this year or will
be posting declines in GDP. The emerging markets, which earlier last
year looked like they might be decoupled from this process, are
actually all weakening now."

Shenfeld suggested that Canadians
are at an advantage because the government has spent the past decade
preparing for exactly this type of economic situation.

"In contrast to the U.S. and most other G7 countries, we've paid down a lot of debt," he said.

"We do have the elbow room to run deficits for a couple of years, if need be, to help the economy through the rough patch."

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