Economists predict modest recovery in 2010

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Oliver Po  778-898-5153

Century 21 In Town Realty - Downtown Vancouver

In a session best characterized as sobering, keynote speakers at the annual Vancouver Board of Trade Economic Outlook talked about economic activity at home and abroad. Economists Dr. Sherry Cooper, Helmut Pastrick, and Cameron Muir agreed that a recession will continue in Canada in 2009, but will not last as long nor be as serious as the U.S. economic downturn.

As we move into 2010, we.ll see a pick-up in economic activity,. said Dr. Sherry Cooper, chief economist, BMO Capital Markets. .We.ll likely see a $16 billion stimulus package in Canada, or roughly one per cent of the economy.

We'll see lower growth in the future, and lower rates of return. This will become the new norm.

A concern, as she sees it, is not of rapid in! ation in these times, but of deflation taking hold across our economy as consumer and business spending dries up. She expects inflation, as measured by the Consumer Price Index, will be negative in Canada for 2009, but will trend upward again in 2010.

Cooper said U.S. house prices have fallen about 24 per cent since their peak, and that inventory of unsold homes is at record high levels. She predicts that U.S. housing prices will continue to decline by a further 10 to 15 per cent before hitting bottom.

The rebound in the U.S. housing market will be very slow. And banks will be much more hesitant in their mortgage lending.

In Canada, she said the housing market has slowed, but we aren't going to see the collapses experienced in the U.S. Our bank's more stringent lending practices prevented Canada from having the same sub-prime mortgage issues that caused such a dramatic decline in the U.S. housing market.  However, the global economy is in recession and all G7 countries, of which we are one, are affected.

GDP is contracting.  We believe this will level off by year-end, but we'll likely end up below the levels that existed before the recession began.  Cooper said.

Among the bad news...

.  Volatility in our currency is likely to continue until the global economy rebounds;

.  Commodity price weakening, i.e. oil, hurts the Canadian economy;

.  Retail sales are down, again not as bad as the U.S. where they experienced the worst Christmas retail sales since the Great Depression;

.  Business con" dence in Canada is decreasing;

.  Canadian bank stocks are down.

Cooper said baby boomers will have to re-build savings and investment portfolios, given that the " nancial market meltdown has wiped out savings accrued over the past decade.

"Ultimately, this is not a bad thing. Boomers should have been taking their savings and investments more seriously. In future, they will."

The good news is that Cooper said her 2008 predictions were more negative than her outlook for 2009 and beyond. While recovery will be a very slow process, she was optimistic that economic indicators would begin to look up by 2010 as consumers and businesses around the world continue to deleverage themselves.

Helmut Pastrick, Chief Economist, Central 1 Credit Union

Pastrick agreed with Cooper that the BC economy will likely remain in recession

in 2009, with moderate recovery in 2010. He said the following factors demonstrate that a slowdown in growth is underway in the BC economy, suggesting that we are headed for a weaker economic performance:

. Employment has been declining over the past four months

. Business start-ups declined throughout 2008

. Real goods exports have been trending lower over the past two years

. Tourism sector declined in 2008

. Retail sales were down throughout 2008 (affected by lower prices, such as gas)

. Investment in commercial and industrial buildings has been declining

. Housing sales and starts have been declining

On the bright side, Pastrick said that most BC recessions are short and shallow. Of the four recessions we have experienced since 1961, only one had a longer and deeper impact: 1982.

Here is a sample of BC economic assumptions provided by Helmut Pastrick:

Cameron Muir, Chief Economist, BC Real Estate Association

"We've had four recessions since 1961 . we successfully predicted all seven of them", was Cameron Muir's tongue-in-cheek introduction to his remarks.

On the consumer confidence index, BC consumer confidence dipped significantly in 2008. Looking ahead, he said it's difficult to forecast where consumer confidence is likely to go. The current fear is not the "irrational exuberance" of the past but what might be becoming "irrational despondency."

The housing sales-to-active listings ratio in Vancouver for 2008 shows that we're in a declining market.  Housing starts are expected to continue to decline this year, at a rate of between 25 to 30 per cent. Muir said that's reasonable given current economic uncertainties.

But he said we should not expect to see foreclosure levels like those in the U.S. and home sales are unlikely to go lower in 2009.

Muir said that about seven per cent of all U.S. mortgages are delinquent and U.S. housing starts are below 1970 levels, which directly affects sectors like our BC forestry industry.

As for real estate locally, he said that Vancouver boasts an extremely diverse housing stock, which should help attract first-time homebuyers to the market when a recovery comes. He believes that the actions of this typically younger demographic will be central to a local recovery, but he reminded the audience that our economy today is part of an inter-connected global system.

"A lesson we've learned from all this is that local problems have global consequences and global problems have a local consequence," Muir said.

Source: Realtorlink Jan. 30, 2009 

http://www.realtorlink.ca/portal/server.pt/gateway/PTARGS_0_112390_1570707_0_0_18/RealtorLink%20Newsletter,%20January%2030,%202009.pdf

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