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Newsletter. Issue 2010-04. February 13, 2010

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Global Recovery Has Achieved Liftoff, But The Flight Path Will Be Turbulent
According to Scotiabank Chief Economist

TORONTO, Feb. 3 /CNW/ - Led by China and a number of emerging nations, the global recovery has achieved liftoff, according to the latest Economic Directions report released today by Scotia Economics, entitled Liftoff Achieved, But The Flight Path Will Be Turbulent.

"The U.S. and other developed economies should become fully airborne in the months ahead, fuelled by unprecedented monetary and fiscal stimulus set in motion in 2009, the revival of consumer spending and the re-ignition of production as firms react to improving sales prospects," said Warren Jestin, Chief Economist, Scotiabank. "However, a legacy of high unemployment and structural weakness in key sectors such as housing and financial services points to a bumpy ride during 2010 and a relatively low-altitude global growth trajectory into the next decade."

Domestic economic conditions have been more resilient in Canada than in the U.S., in large part because of the world-class strength of our financial sector and relatively stronger household, corporate and government balance sheets. Canada experienced only about half the rate of job loss recorded south of the border during the downturn and has led the U.S. in a return to job creation.

"These factors have supported a rebound in consumer spending and the revival of Canada's housing market, where buyers have been taking advantage of historically low interest rates at a time when U.S. residential activity is still mired in recession," commented Mr. Jestin.

According to the report, the pathways from recession to recovery vary significantly between Canada and the U.S., but both nations are benefitting as public infrastructure projects get underway.

"While there is a risk of economic relapse as governments begin unwinding unprecedented monetary and fiscal support, the broadening of global growth across sectors and regions should sustain the recovery through 2010," said Mr. Jestin. "In Canada and the U.S., however, this year's growth will do little more than backfill the hole created by the steep decline in activity during 2008-09. Even this modest performance will compare favourably with trends in Europe and Japan, where economic retrenchment has been much deeper and the timetable for regaining lost GDP will stretch beyond 2010."

With developed nations locked on a relatively low growth trajectory, China and other fast-growing emerging markets will provide a large share of global locomotion. In a year when global output shrank by over two per cent, China grew by nearly nine per cent in 2009.

Even with inflation held back by lingering excess capacity in a wide range of industries, interest rates will rise in the second half of 2010 as central banks begin easing up on the monetary accelerator, with the U.S. Federal Reserve and the Bank of Canada likely to raise rates two percentage points or more by mid-2011.

The Canadian Economy - Adjusting To New World Realities

The report also states that Canada is on the road to recovery, but that road is not taking us back to the world that existed before the sub-prime crisis began. Canadian governments entered the recession in much better fiscal shape than our main trading partners - an important strategic advantage in dealing with the downturn. However, current deficits will be difficult to unwind, with spending cutbacks tough to implement and the revenue rebound constrained by relatively subdued economic growth.

"In this environment, there is little leeway to use public subsidies to insulate domestic business from the powerful forces reshaping the global economic landscape," added Mr. Jestin. "Governments cannot afford to use the auto bailout as a template for supporting industries in crisis nor do they have the prescience to use industrial policies to pick winners and losers.

"A winning public sector strategy involves establishing a competitive tax environment and a world-class urban infrastructure, both of which have been given significant attention in recent federal and provincial budgets," continued Mr. Jestin.

According to Mr. Jestin, as Canadian businesses confront tougher realities in traditional markets, they are beginning to find a world of opportunity in new ones. Demand from China and other emerging markets has already helped push commodity exports to roughly half of Canada's foreign sales. Rising incomes in these nations will underpin rapid growth in consumer spending, providing important new opportunities for Canadian businesses.

"Success in these and other markets will depend on identifying high value-added, skill-based Canadian products and services that can plug into global supply chains or take advantage of unique niche market opportunities," said Mr. Jestin. "Highly entrepreneurial small- and medium-sized businesses in these rapid-growth areas will likely be a key source of Canadian job creation over the next decade.

"For governments and many businesses, focussing scarce resources on familiar markets and industries, while ignoring or avoiding new and unfamiliar ones, is likely to be a losing strategy," concluded Mr. Jestin.

Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

For further information:
Warren Jestin, (416) 866-6136, ; | Robyn Harper, Public Affairs, (416) 933-1093,


Be Wary Of Hype On Global Recovery
Monday February 1, 2010 | Global Trends by MARTIN KHOR

Three eminent economic experts last week warned developing countries to be cautious of the current talk of a global recovery and instead, to prepare policy options to face crises.

DEVELOPING countries should be cautious about the current hype about a global economic recovery and instead, prepare policy options in a world where they have to rely less on exports for future growth. This sombre assessment came from three eminent economic experts who warned that the world economy is not out of the woods yet. More than a hundred developing countries have not begun to share in the recovery proclaimed by the media.

Dr Yilmaz Akyuz, special economic adviser of the South Centre, Dr Supachai Panitchpakdi, Secre-tary-General of the UN Conference on Trade and Development (Unctad) and Prof Deepak Nayyar, former vice-chancellor of Dehli University, were speaking at a workshop organised by the South Centre last Thursday. Held at the United Nations building in Geneva, the workshop brought together over a hundred diplomats and researchers from developing countries and international organisations. The event was chaired by the former president of Tanzania, Benjamin Mkapa, who now chairs the South Centre.

Dr Yilmaz, who is also a former chief economist at the Unctad, said there is consensus that recovery has started, with positive growth expected in all major economies this year. But there are problems ahead. The crisis intervention policies in developed countries, based on increased government spending and monetary expansion, are creating another bubble, with financial institutions out of touch with the real economy again. As policy makers recognise the risks of the new bubble, there are signs of an ?early exit? from the stimulus plans, such as the end of interest rate cuts and the phasing out of additional spending.

As the effects of the stimulus packages fade away, economic activity may either lose momentum or even turn down, warned Dr Yilmaz. And if the stimulus policy is reversed too soon, there could be a new and deep economic dip. With the United States running trade deficits, it now needs to adjust, with a shift away from relying on consumer spending to export-led growth. The US President?s target of doubling exports in five years (in his State of the Union address last week) is in line with this.

The consequences of the US adjustment can have adverse effects on developing countries, predicted Dr Yilmaz. Interest rates are likely to go up, thus increasing the cost of financing and the burden of debt repayment, while a possibly strong dollar would weaken commodity prices. Can China replace the US as the locomotive for world growth? Dr Yilmaz said there is expectation that China would increase its domestic consumption as its exports will face sluggish markets.

Developing countries that are export-dependent may thus hope that their exports to China will be maintained at least, and thus offset their loss of exports to the US. However, according to Dr Yilmaz, much of the imports entering China have been inputs used to produce Chinese exports. Even if China maintains its high growth by switching from exports to local consumption, this will not help developing countries as much, because there is little import content in the goods that the Chinese produce for their local consumption.

?Thus China is not a good substitute for the US or Europe as a market for other developing countries? exports, even if it were to maintain over 10% growth based on domestic demand,? concluded Dr Yilmaz. The other two major economies, Germany and Japan, are also not likely to boost their economies and increase their imports. Thus, there will be sluggish and erratic global growth, and instability in capital flows and exchange rates.

Dr Yilmaz also predicted a rise in protectionism and a backlash against globalisation, both in the developed countries. Developing countries will thus have to prepare for testing times ahead. Dr Supachai warned the developing countries not to be misled by talk about an ?early recovery?. In his estimate, more than 100 developing countries are still in recession. The stimulus plans of developed countries cannot be sustained because they cannot raise more of the huge funds already used. The Unctad chief added that the recovery is only partial, taking place in some sectors (the stock market and real estate), and there is still to be the unwinding and de-leveraging from household and corporate debt.

After a recession, it takes three to five years for the unwinding, but as this is a great recession, the time needed would be five to seven years, he predicted. Unctad data showed a 39% drop in foreign direct investment last year, with more than a 50% drop in some developing countries. There is no robust FDI rebound anticipated this year.

Dr Supachai also painted a bleak picture on trade, whose volume fell by 15% last year and is expected to rebound by only 5% this year. The data show that we are in a delicate period, which he called a ?post cardiac arrest? situation.

?We have not been successful in getting the global economy out of recession yet, and we should not fall into a business as usual mode which is being promoted by big bankers and those they try to influence,? he said.

Dr Supachai proposed an expansion of South-South cooperation, with developing countries increasing trade among one another and pooling their financial resources, including new regional monetary funds. The fluctuations in commodity prices should be addressed, and global economic governance should be reformed.

The financial system should also be changed, so that banks be confined to doing narrow banking business (collecting savings to lend out) and not anything more fanciful.

Prof Deepak agreed with Dr Yilmaz that China could not be expected to take up the slack caused by US adjustment. The economic prospects of developing nations depend on recovery in the developed countries, especially the US, but even so, the recession could still become a depression.  The crisis should induce a rethinking of development, said Prof Deepak. There should be a reform in orthodox macro-economic policy thinking which should not focus only on inflation control, and there should be caution in financial liberalisation.

Developing countries should also re-think their relative reliance on external and internal markets and financial resources. Domestic markets are critical and external markets cannot be substitutes. It is also time to recognise the pro-active role of a developmental state, including in implementing industrial and technology policy. At the international level, there must be coordination of policies of countries. Fortunately, developing countries are becoming more important in output, trade and the holding of foreign reserves. They can thus have a greater say, but if they organise themselves better.

The conclusion from the workshop speakers was that developing countries should draw their own lessons from the global crisis, not to be complacent about the ?recovery?, and re-think development strategies and policy options, as well as be advocates of international financial reform. As Dr Supachai said, the chance to reform the financial system after the Asian crisis in 1997-98 was missed and another bigger crisis has now hit the world. We may miss the boat again, unless something is done now.

China, Emerging Markets More Important Since Crisis
The Canadian Press | Updated: Wed. Feb. 3 2010

TORONTO - Scotiabank says Canada's economy is on the road to recovery but the country will have to adjust to a world that has changed since the recent global financial crisis.

The Canadian bank's chief economist, Warren Jestin, says China and other emerging markets will provide a lot of the world's future economic growth. Jestin says Canada's success in these markets will depend on identifying high-value products and services that can plug into global supply chains. He thinks a key source of Canadian job creation over the next decade will come from highly entrepreneurial small and medium-sized businesses.

Scotiabank also warns that governments cannot afford to use last year's bailout of the auto sector as a model for supporting industries in crisis. Jestin says a winning strategy for government is to establish a competitve tax environment and what he calls a "world class" urban infrastructure.

Report tells Ryerson University to crack down on racism
The Canadian Press with a report from the Toronto Star | 2010/02/08

A 107-page report to be released today calls on Ryerson University in Toronto to do more to eliminate racism.

The report, commissioned by the university, follows a year-long probe that heard some visible minority students say they feel harassed. Some students also complained about professors who don't always deal with offensive comments made in class and some non-white staff reported a "chill" that shuts them out of the power loop.

The Toronto Star says the report calls for immediate anti-racism training for senior staff, sharper targets for hiring visible minorities and more courses on diversity. While noting most students and staff call the downtown campus ``a great place to learn and work,'' the report cites a worrying lack of diversity in several faculties. The school is also urged to collect race-based statistics on staff and students so it can track whether equity is improving.

Indo-Canadian Kochchar gets Senate seat
(Feb 04 2010)

Toronto: The Harper government appointed Vim (Vimal) Kochchar, one among five, to the Senate. The Indo-Canadian businessman has been an influential member of the Progressive Conservative (PC) party. He is the president of Canadian Foundation for Physically Disabled Persons and serves as board member for the Canadian Museum for Human Rights and as chair of the Canadian Paralympic Foundation.

He will join another Indo-Canadian Mobina Jaffer of British Columbia in the Upper House. Mobina, a lawyer, was appointed by former Prime Minister Jean Chrentien. Born in India, Kochhar has an engineering degree from the University of Texas. He immigrated to Canada in 1967 and became a citizen in 1974. President and founder of the Vimal Group of Companies in Toronto. Working for InterContinental Hotels and Howard Johnson Hotels, he was responsible for project management of major hotels around the world.

The other four new Senators are: Bob Runciman, a long-time Ontario MPP, Rose-May Poirier, of Bew Brunswick, Pierre-Hugues Boisvenu, of Quebec, Elizabeth (Beth) Marshall, of Newfoundland and Labrador.

A New Port in Kenya at Lamu
Re ?Kenya?s Port of the Future Finds a Pristine Home? (Lamu Journal, Jan. 12):

While your correspondent described in great detail the potential negative effects of the port, the article barely touched on the enormous benefits that this port will bring not only to Kenya but also to the economy of the entire region of East Africa.

With the port of Mombasa at full capacity, a second transportation corridor through the port of Lamu is necessary to create jobs and international trade for the 260 million people who live in Tanzania, Uganda, Burundi, Rwanda, Congo (Kinshasa), southern Sudan, Ethiopia, the Congo Republic (Brazzaville), Chad and the Central African Republic. The port of Lamu and the new East Africa Railway line that will be built will strengthen East Africa?s ties with the outside world, and help elevate Kenya?s infrastructure to 21st-century levels.

The government of Kenya is sensitive to the uniqueness of Lamu?s culture, and we will do all we can to minimize the disruption caused by the port. But history has shown that great feats are never accomplished without some change, and our government is dedicated to bettering the lives of all Kenyans and the East Africa region.

Peter N. R. O. Ogego | Ambassador of Kenya | Washington, Jan. 15, 2010

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