In her first forecast since becoming Banc of America Securities-Merrill Lynch's head of Canada Economics and Investment Strategy, Sheryl King surveys the numbers (King's chart is left) and finds the clouds clearing so far as Canada's ecnonomic outlook is concerned:
We have revised our GDP forecast up to -2.0% for 2009 (was -2.7%), and 2010 is now expected to post a 2.7% increase versus 2.3% in our previous forecast. By the end of the year, we think job losses will probably taper off and give way to some modest employment growth in the fourth quarter, allowing the unemployment rate to top out at a 12-year high of 9% this autumn.
But despite a slightly more optimistic outlook than the one her predecessor David Wolf (now at the Bank of Canada) delivered earlier this year, King believes the medium- and long-term outlook for Canada's economy is still not a good one and she believes that is because of the decisions that both the federal government and the Bank of Canada have made or are likely to make:
Summing up our forecast in just one phrase – we are not going to fight the feds. Both fiscal policy and monetary policy are in easy mode and the magnitude of the policy response should produce growth. While these are rather significant upgrades to the outlook, we remain bearish longer term. Restructuring and credit issues are going to be headwinds for the Canadian economy for the next couple of years, in our view, much like the Bank of Canada laid out in the last Monetary Policy Report. Nonetheless, signs of accelerating growth and the absence of any significant rollover in core inflation will prompt the Bank to overreact much as they overreacted to the downside risks to growth earlier this year, in our view. All of which suggest to us that the upturn in the economy will be very short-lived indeed.
King's forecast, incidentally, comes two days before the public release of another outlook from a key forecaster: The Parliamentary Budget Officer. This morning, Budget Officer Kevin Page distributed his forecast — which is widely expected to be much gloomier, particularly when it comes to the size of the deficit, than the official Department of Finance outlook — to all members of the House of Commons Standing Committee on Finance. MPs will get 48 hours to look over Page's numbers and then he'll release his forecast to the public on Wednesday.