Economic Recovery Underway by Dave Hobden, Economist at Central 1 Credit Union
The international financial crisis that emerged in June 2008 is largely over. There are early signs of a global economic recovery and confidence in financial institutions is returning. The market value of many risky assets is rising as investor confidence builds. The global economy is forecast to continue recovering, although high levels of government and household debt in most mature economies will subdue the rate of growth.
The U.S. economy began recovering last summer from its worst recession in over 65 years. The recovery has so far been led by government stimulus measures and resumed growth in business investment in machinery, equipment and inventory. Corporate profits have returned and exports are rising. Growth is subdued, however, by weak consumer spending and continued declines in employment. Real economic growth in the U.S. this year is forecast at about 3%, which is notably slow for a recovery phase.
Canada’s economy began recovering late last summer from its worst recession in 27 years. Government stimulus measures, resumed growth in industrial production of exported commodities and a strong rebound in housing sales and prices have led the recovery so far. Employment and consumer spending have resumed growing. Weak U.S. demand for Canadian exports and appreciation in the Canadian dollar has subdued the rate of recovery. Canada’s real economic growth is forecast at about 3% this year, which is notably slow for a recovery phase.
Alberta’s economic recovery has so far been weak. Employment has continued to ebb and exports have barely begun to turn upward. Oil production trended slightly downward through the last half of 2009 while natural gas production, which is in long-term decline, only rebounded from the cyclical decline in the last two months of 2009. Sluggish growth is forecast to continue this year in Alberta, with real GDP expanding by only 2.5% following an estimated 3.3% contraction last year.
B.C.’s economy has grown fairly robustly since the second half of 2009, driven by higher housing sales, hours worked, retail sales, manufacturing sales and international visitor entries. Lower housing construction has dampened growth, although housing starts have begun to rise and are expected to outpace completions soon. Real GDP in B.C. is forecast to rise 2.8% this year following an estimated 3.1% contraction last year.
Commodities were hard hit during the recession and have so far only partly rebounded. Demand in industrialized economies will improve only gradually this year. Coal, steel, oil and gas prices and volumes are forecast to rise slowly. The weak U.S. dollar will further dampen growth for producers in western Canada.
Near record-low interest rates are forecast to last only until mid-2010, as central banks ease back on monetary stimulus to cool expected inflation. Long-term rates will turn higher first and all rates will be higher in 2011. Higher interest rates, the introduction of a Harmonized Sales Tax in B.C. and tighter mortgage qualification thresholds will cool the resale housing market. New home construction is forecast to lead domestic economic growth in 2010.
For the East Kootenay region, economic prospects are gradually improving in step with global and regional economies. Industrial production is rising but it is a long road back to normal levels. The same applies to coal, lumber and tourism exports. Local housing markets have slowed so far in 2010 following a strong rebound in 2009. Alberta’s economic impact on local tourism and housing markets will remain muted through 2010. Unemployment will remain elevated until consumer spending and business investment replace fiscal and monetary stimulus as key growth drivers.