On The Mend
August 7, 2009On The MendOn the mend, by Scotiabank Deputy Chief Economist, Aron Gampel The Canadian economy is transitioning from recession to recovery. Output should begin expanding again in the current quarter, with the pace of activity gaining momentum later this year and continuing into 2010. Across the country, there are signs that households are taking advantage of improved affordability to purchase increasing numbers of homes and motor vehicles, with the reduced inventories enabling firms to increase output. The construction sector is beginning to feel the effects of increased public sector expenditures on infrastructure-related projects. The acceleration in growth in many developing economies, China in particular, is putting renewed upward pressure on commodity prices, and helping to restore balance in the resource-rich regions. And the broad service sector is beginning to reflect the general improvement in overall economic conditions. There is, however, lingering weakness that touches most sectors and regions in Canada. Many firms are still cautious in their hiring and investment intentions, preferring to restructure their operations in response to the ongoing slump in U.S.-destined exports and longstanding competitive issues. Nevertheless, there are three key factors that are helping to revive growth. First, historically low borrowing costs are facilitating refinancing activity and promoting new borrowing. Second, the large and lengthy period of non-stop inventory liquidation is coming to an end, with firms set to reboot production to meet the increased demand. And third, the ramping up of government expenditures will help sustain the economic rebound as the massive backlog of infrastructure-related construction activity builds momentum through 2010. Stay informed
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