Economic Recovery Must Be Right Around the Corner
Statistics Canada reported last week that the Canadian economy shrunk by 3.4% on an annualized basis in the fourth quarter of 2008. If we needed proof, that was it. In my time there at cktimes.ca I’ve written lots about global and national economy growth. I don’t have a lot of practice on writing about recession.
However, I’ve been an agricultural economics writer long enough to know what comes around goes around. And also I’ve seen more than one economist make mistakes. Now in 2009 is no different than any other year.
Case in point is the current recession. If 2009 turns out as bad as the fourth quarter of 2008 indicates, we’re into a rough year. However, it was only fourteen months ago some leading economists were saying the opposite. For instance the following was taken from a CBC report last January 9th, 2009
“Canada’s economic growth will slow down this year, but will avoid a recession, top economists at Canada’s biggest banks agreed Wednesday.
TD Bank chief economist Don Drummond, speaking at a forum at the Economic Club of Toronto, is forecasting GDP growth of 1.9 per cent in Canada this year, while Sherry Cooper of BMO Capital Markets is calling for 2.2 per cent — the same as the Bank of Canada predicted in its last economic outlook in October.
The five economists don’t see a recession in the U.S. either, although some say it will be close.
“We sure are not far from it and it will feel like a recession,” said Cooper, chief economist at BMO, calling the decline in the U.S. housing market “without precedent.”
“The [U.S.] recovery is going to be very very lethargic,” said Scotiabank chief economist Warren Jestin. “We’re going into a recuperative period that may very well span all of the 2009 calendar.” (No Recession in Canada, Bank Economists Say, CBC News.ca January 9, 2008)
It almost seems retro reading that. In our current climate with prices retreating, stock markets going down and interest rates the cheapest ever, it is truly unprecedented in at least the last 70 years. Of course it is so difficult to know what is ahead, just look at what those economists were saying a year ago.
It is like a self-fulfilling prophecy. There have been bank failures, followed by price declines, followed by more business failures, followed by more unemployment. The Bank of Canada is said to be on the verge tomorrow of cutting interest rates again, this time to below 1%! It’s almost like I’m writing economic science fiction. My first operating loan as a young farmer in 1981 was at 23.25%. In 2009 interest rates have dropped so much, it seems the Bank of Canada can’t even give money away. That’s how much credit has dried up, that’s how much people are stashing money away, and that’s the crux of our current problem.
Needless to say, it seems Canada is an island compared to the rest of the world. So much so our Prime Minister Stephen Harper was on CNN over the weekend talking about how the Canadian banking sector was solid compared to the
US banking sector. The American commentator Fareed Zakaria has written favourably about Canada recently and it showed in his interview. However, for Canadians losing their jobs, I don’t think the spectre of the Canadian Prime Minister musing about our stronger banks gives them solace. Clearly Stephen Harper parsed those comments, concentrating on how serious this global financial situation really is. He has certainly backed that up with our government’s stimulus package.
The problem of course if frozen credit, lost savings, more unemployment, it is almost an economic horror movie. If you have a job you are wondering if you are going to keep it. If you have a small business you’re wondering if there will be demand for your products. At a certain point it is going to be affecting the public sector. That will mean that government will need to cut costs. However, they might decide not to do it now, because that would simply make things do much worse.
I’d like to say the “economic stimulus” passed in Washington and Ottawa as well as Europe is about to come to the rescue. However, all you have to do is look at those comments above from economists I respect to see that nobody’s opinion is worth much these days. However, keep in mind the bottom will come someday and it’ll probably come when you least expect it. At a certain point, things will get so cheap that capital will start moving again.
When will that happen? Of course I dunno, but all the big high priced economists are saying 2009 is going to be a real bad year. Maybe that should be our clue, recovery is just around the corner.