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Recession for Canada in 2009: UBS

But fundamentals are sound, and recession should be shallow and short: Strategist

 

Jonathan Ratner, Canwest News Service

Published: 2 hours ago

 

TORONTO - Declining GDP in the fourth quarter of this year and the first quarter of 2009 will bring the Canadian economy into an official recession, UBS predicted Monday.

 

"The Canadian economy, which has been only barely above water for nearly a year, does not escape the global undertow . . ." strategist George Vasic told clients.

 

He cited weakness in exports and sharp reductions in commodity prices as where the impact is being felt most. While domestic demand has held up, UBS expects weaker confidence will put activity on hold.

'The Canadian economy, which has been only barely above water for nearly a year, does not escape the global undertow . . .' UBS strategist George Vasic told his clients.

'The Canadian economy, which has been only barely above water for nearly a year, does not escape the global undertow . . .' UBS strategist George Vasic told his clients.

 

But for the first time in a long time, the underpinnings of the Canadian economy are sound going into the downturn, Vasic said, highlighting historically average consumer debt service ratios and a balanced budget.

 

". . . It is not always the case that when the U.S. catches a cold, Canada gets pneumonia," he added, predicting that consumer sentiment should hold up better.

 

As a result, the strategist said the economic risk is lower in Canada and there is room to take on counter-cyclical initiatives. UBS expects the bank of Canada to lower its overnight rate target from three per cent to two per cent by the end of the first quarter and sees the loonie falling to around 91US cents.

 

Nonetheless, the Canadian economic outlook has been cut from 1.8 per cent to 0.4 per cent next year. UBS also cut its 2009 U.S. growth target from 1.2 per cent to 0.3 per cent and global growth from 2.8 per cent to 2.2 per cent.

 

It reduced its crude oil price forecast from $120 US a barrel to $105 US and expects other commodities to be five per cent to 30 per cent below 2008 levels.

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