Sean Kilpatrick
The evidence supporting a global economic recovery is gathering force faster than governments and economists were expecting.
Canada's central bank said Thursday that the country's gross domestic product likely will grow at a faster pace over the second half of 2009 than the 2.2-per-cent annualized rate it predicted in July.
Bank of Canada Governor Mark Carney's revised outlook, based on an array of positive indicators ranging from rising consumer confidence to fresh demand for automobiles, was bolstered by government reports in Ottawa and Washington that showed North American trade sprang back to life in July.
Imports and exports jumped in both the United States and Canada, amid demand for automobiles, automotive parts, and energy, signalling that the $2-trillion (U.S.) that governments have pumped into the world economy to reverse the financial crisis is having the desired effect.
"Following a deep, synchronous recession, recent indicators point to the start of recovery in major economies, supported by aggressive policy stimulus and the stabilization of global financial markets," the Bank of Canada, which demurred from making a new GDP forecast, said in its latest policy statement.
In another sign that financial markets are healing, EnCana Corp. Thursday said it will revive its plan to split into two companies - one focused on oil sands and the other on natural gas. The company had cancelled the plan last fall, blaming chaotic financial markets.
The North American trade figures were echoed in France, where the government said international shipments by the world's sixth-largest exporter soared 9 per cent in July. Stock markets in New York, Toronto, Sao Paulo, London and Frankfurt all rose on a general sentiment that a global recovery is afoot.
"Compared to where we were a few months ago, it should be celebrated," Andrew Tilton, an economist at Goldman Sachs Group in New York, said of the mounting evidence that the world economy is mending quickly. "Momentum has turned in terms of growth."
But the potential celebrants in the finance ministries and the central banks of the world's major economies - who have demonstrated uncommon unity in fighting the financial crisis - are showing considerable restraint in claiming victory.
Instead, they are digging in to ensure they finish the job.
Despite faster growth, the Bank of Canada retained its extraordinary pledge to leave its benchmark lending rate at a record low of 0.25 per cent until June, 2010, barring an unforeseen burst of inflation. Policy makers also warned that "persistent strength" in the Canadian dollar could derail the recovery by making Canadian exports less competitive.
In updating the Canadian government's fiscal projections yesterday - which include a revised forecast for a budget deficit of $55.9-billion in the current fiscal year - the best Finance Minister Jim Flaherty said about the economy was that it is in the "early stages of a fragile recovery," telling an audience in Victoria that he would push ahead with his stimulus program.
That cautionary note is echoing among policy makers around the globe.
U.S. Treasury Secretary Timothy Geithner said yesterday in Washington that the recovery would feature "more than the usual ups and downs" and that he would proceed carefully in unwinding the Obama administration's stimulus measures.
Federal Reserve Bank of Atlanta president Dennis Lockhart predicted the rebound would be "lacklustre," while Reserve Bank of New Zealand governor Alan Bollard said it would be "patchy."
The reason for such wariness is to push back pressure to reverse spending programs that are piling up debt.
"When the economy is walking solely with the aid of fiscal and monetary crutches, it's not advisable to whip them away," said Axel Weber, Bundesbank president and European Central Bank council member, in Ploen, Germany.
The economic data isn't universally strong. As the North American economy showed signs of life in July, Japanese machinery orders fell to a record low, a government report said yesterday. In Rome, new figures showed that Italian exports fell 3.7 per cent in the second quarter.
A sense of worry also was apparent in a sentiment survey of 1,153 of Royal LePage Real Estate Services Ltd.'s real estate agents.
When asked if they thought the recovery was sustainable, 61 per cent said "yes" and 28 per cent said "no."
The negative sentiment surprised Royal LePage's chief executive, Phil Soper, who said he expected something closer to unrestrained enthusiasm among his agents because Canada's housing market has rallied so strongly this summer.
"Clearly, there is a concern that interest rates are driving so much of the current strength that a change in policy could bring the current good times to an end rather abruptly," Mr. Soper said in an interview. "This will be a steady, slow recovery."
With files from Bloomberg News