DOUGLAS COULL/THE GLOBE AND MAIL - SOURCE: OECD ECONOMIC OUTLOOK NO. 84, NOVEMBER, 2008
Canada eyed to lead recovery among G7 in 2010
By Pan Pylas
The current financial crisis will likely push developed countries into their worst recession since the early 1980s, the Organization for Economic Co-operation and Development said in its recent economic outlook for 2009.
Canada will not be immune to the global malaise and will see its economy shrink by an average 0.5 per cent next year, the Paris-based think tank said in the report released late last month.
It said almost all the 30 developed countries that make up the OECD have already entered the recession, with economic output likely shrinking by 0.4 per cent in 2009 for the 30 economies, compared with the 1.4-per-cent growth prediction for 2008.
However, the OECD also predicted that Canada will lead the recovery among G7 nations in 2010; it forecasts that the Canadian economy will advance by 2.1 per cent that year.
As a sign of how economic expectations have flipped in the past two months, the OECD had been projecting positive growth for most of the developed countries as recently as September. The United States, it said in the report, will be among the hardest hit next year with a GDP contraction of 0.9 per cent, while the 15- member Euro zone will shrink by an average 0.6 per cent.
"Many OECD economies are in, or are on the verge of, a protracted recession of a magnitude not experienced since the early 1980s,'' said Klaus Schmidt-Hebbel, the OECD's chief economist, in releasing the report.
It anticipates that recovery for the U.S. economy will come in the third quarter of 2009 as the effects of the credit squeeze abate, the housing downturn bottoms out and low interest rates bear fruit. The uncertainties around the projections are "exceptionally large," mainly on the downside and mostly relate to the assumption regarding the speed at which the financial market crisis is overcome, Mr. Schmidt-Hebbel said.
The OECD highlighted a number of countries where the downturn will be severe, partly because of falling house prices. These include Britain, Hungary, Iceland, Ireland, Luxembourg, Spain and Turkey.
"These economies are most directly affected by the financial crisis, which in some cases has exposed other vulnerabilities, or by severe housing downturns,'' Mr. Schmidt-Hebbel said.
The OECD also said economic growth in China will remain below the double-figure rates experienced over the past few years through to the end of the decade. For 2009, its projects Chinese growth to moderate to 8 per cent.
Although the report praised Canada's relative strengths, including government fiscal positions and relatively sound banking and housing sectors, it said that as an exporting nation, the country cannot avoid being sideswiped by the global financial crisis and economic slowdown.
"Sharply deteriorating conditions in global financial markets, generalized softness in the U.S. economy and receding commodity prices are amplifying export weakness and dragging down domestic spending," the report said.
It predicts Canadian unemployment will rise to 7 per cent in 2009 and 7.5 per cent in 2010, from the current 6.3 per cent. It also forecasts Canadian private consumption will fall 0.6 per cent next year. The federal and provincial governments will record an accumulated deficit of 1.3 per cent of GDP next year and 1.7 per cent in 2010, the report said.
AP with a report from CP