B M O Economist: Recession to be short, growth to return in early 2002

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(from CBC)
Recession to be short, growth to return in early 2002: BMO economist
Last Updated: Tue Nov 6 10:08:06 2001

TORONTO - The recession currently gripping the Canadian economy will be short and shallow, an economist at the Bank of Montreal said Tuesday.

BMO chief economist Tim O'Neil said the U.S. economy will shrink by less than one per cent over the second half of this year, pulling Canada's economy down with it. However, the worst should be over by early next year and growth should strengthen through 2002 and 2003.

BMO economists forecast quarterly growth to be at or above four per cent in the United States and Canada during the second half of 2002. The rebound in the U.S. will strongly contribute to the upswing in the Canadian economy. Growth in 2003 is expected to average 4.1 per cent in Canada and 3.9 per cent in the United States.

Lean inventories, growth in government spending and rebounds in consumer and business investment should lead the way in fuelling the U.S. recovery, the bank said.

"The difference between this recession and the previous downturns of the early 1990s and 1980s is that monetary and fiscal stimulus had a head start on the downturn," O'Neill said.

"Critically, both the U.S. Federal Reserve and the Bank of Canada began cutting interest rates in January and that, with the usual time lags, should moderate the downturn and hasten the rebound," he added.

Over the next few months, the U.S. and Canadian central banks are expected to continue cutting interest rates to boost the economy. The U.S. Federal Reserve was expected to cut its key rate by at least 25 basis points on Tuesday, while BMO expects the Bank of Canada to lower rates by another 50 basis points by the end of 2001.

However, that should spell the end of the rate cutting cycle, as an economic recovery is expected to lead to higher rates in the second half of 2001.

The current economic weakness in Canada will push the unemployment rate up to 8.1 per cent in 2002 from the expected 7.2 per cent this year. The jobless rate should ease back down to 7.7 per cent in 2003, the bank said.

Across the country, British Columbia's economic recovery is expected to be hurt by weak commodity prices. B.C.'s economy is expected to grow by only 0.9 this year. Drought in Saskatchewan will bring growth down to only 0.6 per cent in 2001.

Meanwhile, energy resource development will help Alberta and Newfoundland and Labrador to maintain the strongest growth in the country. Alberta is expected to lead the country with 4 per cent growth this year, while Newfoundland will head up the pack with 5.5 per cent growth in 2002.
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2001-11-6 -04:00
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