National Bank Financial Group

National Bank Financial Group

December 17, 2009 09:54 ET

National Bank Financial Group's Economic and Financial Outlook-Winter 2010: A Synchronized Global Recovery

MONTREAL, QUEBEC--(Marketwire - Dec. 17, 2009) - The global economy is returning to a growth track after the worst recession in more than 60 years. Stefane Marion, Chief Economist and Strategist of National Bank Financial Group (TSX:NA), stated recently that "Central banks and governments around the world have done their utmost to loosen up credit markets in the past year. Their massive injections of liquidity are bearing fruit: credit markets are normalizing and economic growth has resumed in many countries and regions. These developments are all the more encouraging in that leading indicators continue to gain strength. A 4% rebound of world GDP next year seems increasingly plausible."

Assistant Chief Economist Yanick Desnoyers added that "in contrast to previous cycles, this global recovery will be spearheaded by emerging economies, which account for more than two-thirds of the global growth forecast for 2010."

U.S.: Conditions for sustained growth are now in place

Paul-Andre Pinsonnault, Senior Economist - Fixed Income, noted that "in the U.S., the vigorous response of the Federal Reserve and the federal government have led to an improvement in financial conditions and a turnaround in the housing market - two prerequisites for a return to economic expansion." With an impressive surge in profits growth and some stabilization in the labour market, U.S. GDP growth should reach 3.4% in 2010." That being said, the deleveraging of U.S. households is a factor to be reckoned with. A return of consumer thrift will be one of the main medium-term consequences of the credit crisis.

Recovery is under way in Canada

Though Canada's banking system is one of the best-capitalized in the world, its economy did not escape the financial crisis or the effects of global recession. The GDP contraction was the deepest since 1990-91. The exceptional magnitude of U.S. financial and economic adversity dealt a body blow to Canadian exports, which declined for the longest period in four decades.

However, the Canadian economy as a whole contracted less than the American. Its downturn was regionally uneven and sector-specific. Though Canada's fortunes remain tied to those of the U.S., the market for a very large part of our output, our economy seems better positioned to ride a global recovery because it is less unbalanced. Canadian households have more option room because of their higher savings rate and because their net worth has been much less affected by home price deflation, which has been much milder in Canada than in the United States.

In Canada the recovery is now under way. With residential and business investment reviving and the labour market stabilizing, it will probably be sustained. The global recovery now in sight for 2010 is likely to foster respectable Canadian growth next year, in the neighbourhood of 2.9%.

Regionally, all of the larger provinces were in recession in 2009. Quebec was the least affected among them. Marc Pinsonneault, Senior Economist, ascribes this showing to "the lesser weight of the automotive industry and resources in a fairly diversified economy, and to government investments in infrastructure."

Interest rates set to rise in 2010

In the view of National Bank Financial Group economists, global recovery will lead the Bank of Canada to begin raising its policy rate early in 2010 and continue removing accommodation through the year. This campaign will likely take the overnight rate from the current 0.25% to 1.50% . Even at the latter level, however, monetary policy will remain expansionary.

On the exchange rate, Yanick Desnoyers believes that "the imminent return of employment growth in the U.S. will buoy the greenback, to the point that the loonie could depreciate to some extent early in the new year. However, as commodity prices come under pressure from global recovery, the Canadian dollar will regain altitude and end the year at approximately today's value against the greenback."

In financial markets, investors continue to take heart from hopes for economic recovery and improvement of corporate earnings. In Stefane Marion's view, "even after this year's substantial rally of global equity prices, valuations remain attractive. We see the Canadian market advancing another 10% in 2010." However, as economic growth accelerates, central banks will need to rebalance monetary policy. The resulting rate rises will propagate across the yield curve.

Economic forecasts for North America
2008 2009 2010

United States (%)
Real GDP 0.4 -2.5 3.4
Unemployment rate (end of year) 7.2 10.1 9.6
Inflation rate 3.8 -0.4 2.3
Target Fedfunds rate (end of year) 0.13 0.13 1.50
10-year Treasuries (end of year) 2.25 3.63 4.28
Canada (% unless otherwise indicated)
Real GDP 0.4 -2.4 2.9
Unemployment rate (end of year) 6.6 8.6 8.0
Inflation rate 2.4 0.3 1.6
Housing starts (000) 211 141 162
Target overnight rate (end of year) 1.50 0.25 1.50
10-year Canada bonds (end of year) 2.69 3.60 4.24
Canadian dollar (in U.S. cents, end of year) 82.1 92.0 94.0
Real provincial GDP (%)
Quebec 1.0 -1.5 2.4
Ontario -0.5 -3.3 3.1
Newfoundland and Labrador 0.5 -2.5 2.0
Prince Edward Island 0.5 1.0 1.7
Nova Scotia 2.2 0.5 1.8
New Brunswick 0.0 0.5 1.9
Manitoba 2.0 0.0 2.3
Saskatchewan 4.2 -2.5 3.1
Alberta 0.0 -2.5 2.8
British Columbia 0.0 -2.0 3.4

National Bank Financial Group's "Economic and Financial Outlook - Winter 2009" is available at the Bank's website, at

About National Bank of Canada

National Bank of Canada, which is celebrating its 150th anniversary in 2009, is an integrated group that provides comprehensive financial services to consumers, small and medium-sized enterprises and large corporations in its core market, while offering specialized services to its clients elsewhere in the world. National Bank offers a full array of banking services, including retail, corporate and investment banking. It is an active player on international capital markets and, through its subsidiaries, is involved in securities brokerage, insurance and wealth management as well as mutual fund and retirement plan management. National Bank has more than $132 billion in assets and, together with its subsidiaries, employs 17,747 people. The Bank's securities are listed on the Toronto Stock Exchange (TSX:NA). For more information, visit the Bank's website at

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