In the U.S., housing crisis, now entering its third year pushed the country into a consumer-led recession officially began in December 2007. The slump in the property sector is also a global economic crisis, which grew worse in the second half of 2008, dragging the other blocks of industrialized countries into a recession, too. The new and growing economies are caught in the aftermath. According to Yanick Desnoyers, Assistant Chief Economist, “The emerging economies are still too dependent on the industrialized economies. Decoupling Economic theory is slowly but surely fizzling out.

The recession in the United States should last until mid-2009, which amounts to 18 to 20 months in total, making it the second longest in 80 years. This unusual period due to the fact that U.S. households to reduce their debt sharply in the face of a labor market shed nearly two million jobs so far. Although the Federal Reserve has drastically its main interest rate of 5.25% to almost 0% since September 2007, the financial crisis has led to an increase in risk premiums and a credit crunch that continues to frustrate the monetary policy transmission. Fortunately, the Federal Reserve and the Treasury has extraordinary efforts in recent months to the solvency of the financial system and to inject liquidity directly into the economy in an attempt to revive the credit markets. Moreover, the new government has announced a recovery plan from the budget stimulus measures in an ambitious plan early next year.

Thanks to these measures, plus the measures taken in consultation with the authorities in the leading industrialized countries, we can expect the world economy to recover in 2009.

Canada is still less affected than other countries in financial crisis because of the relatively conservative financial practices, which earned its banking top it in terms of solvency among the 134 countries examined by the World Economic Forum. This despite, as a result of the recession for many of our major trading partners and the decline of commodity prices, a technical recession (two consecutive quarters of negative growth), seems inevitable. But the Netherlands should not be suffering from a deep recession, as a very accommodative monetary policy and substantial fiscal incentives from Ottawa will help domestic demand.

According to Marc Pinsonneault, Senior Economist, all regions will feel the impact of U.S. slowdown and the decline in commodities prices. Although domestic demand will certainly grow at a slower pace in Quebec, GDP will continue to live in 2009 thanks to a significant backlog of orders in the aviation sector and the intensification of public investment in infrastructure. In Ontario, the sharp decline of exports in the automotive sector will lead to a slowdown in the economy, while in Alberta, the drop in energy prices has missed the economic boom. Finalization of the major construction projects will make the impact of global slowdown more patents in British Columbia and the Maritime provinces.
How the interest rate is the Financial Group’s economists are of the view that an environment of historically low interest rates will continue in 2009.

Regarding the financial markets, market strategist Pierre Lapointe noted that the current bear market was the most devastating since the 1930s. In addition, the volatility reached new extremes in 2008. It is important to remember that the volatility and downside risks are two different concepts. According to Mr. Marion, equity markets have already addressed many of the bad news, to the point that the downside risks are significantly reduced. The significant cash injection by the monetary and fiscal authorities in many countries should begin to come into force, thereby helping to normalize the credit market in the coming months. Under these circumstances, it should be no surprise if the world stock exchanges, the tone in the first half of the year prior to the commencement of the economic recovery.

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