Signs pointing to a better year ahead
At this time last year, Bay Street and Main Street alike were bracing for the worst: another Great Depression. And yet 2009 had a few surprises in store. It was a difficult year, with rising unemployment and a dizzying fall for exports. But there were positives: low interest rates and strong stock markets. The Star’s Madhavi Acharya-Tom Yew asked six experts what they expect for 2010:
COMMODITIES - Patricia Mohr, economist and commodities expert at Scotiabank
The rally in commodity prices in 2009 has been extraordinary, faster than normal and from a higher base. The drivers have been demand from China and the beginning of a recovery in the G7 economies. Prices should keep moving higher in 2010. My top pick for the year is premium-grade, hard coking coal. This is sold to Japanese and other Asian steelmakers. The annual contract price is expected to climb by about 32 per cent. Demand is taking off and supplies are tightening. Prices for potash may soften in the coming weeks but there are positive signs for a big pickup in volumes in the first half of 2010. Global demand for crude oil will probably rise. I’m expecting oil prices to approach $90 (U.S.) a barrel in 2010. Gold will still perform quite well. At least, it will hold its value very well for investors.
ECONOMIC GROWTH - Stewart Hall, economist with HSBC Securities Canada
We’re expecting the economy to grow by about 2.4 per cent in 2010. In this kind of global environment, you’re looking at growth that’s more incremental in nature. Canada certainly fits into that. The problem is that the growth is in the wrong places for Canada. A lot of it is coming out of fiscal stimulus. As governments move away from stimulus spending to fiscal prudence, it could put a real drag on economic growth. In 2011, the picture will improve somewhat with a pickup in U.S. business investment and the consumer beginning to crawl out of the hole they were put into because of excessive levels of debt.
CANADIAN DOLLAR - Camilla Sutton, currency strategist at Scotia Capital
We expect the Canadian dollar to appreciate in value, moving through par sometime in mid-2010 and staying above that for the rest of the year. Our outlook is that Canada is well-positioned. We will have stronger growth coming from North America, which should help the dollar. Oil and commodities are expected to move higher next year based on emerging-market growth. That should bode well for the dollar as well. Canada is in a positive light in terms of how well it has come through the financial crisis and the strength of our banking sector. Nothing can really mitigate the strength of the dollar for the export sector.
BONDS - Eric Lascelles, chief economics and rates strategist with TD Financial Group
It makes sense that bond yields should be somewhat higher in 2010. The main driver is central bank rates, and the Bank has made a commitment not to move on interest rates until mid-year. We think it will be the end of the year before they move. Another factor is concern over inflation. Even if there isn’t inflation, just the fear of it can manifest in higher bond yields. Another major concern that has become hugely relevant around the world is bond supply. Governments have been far too profligate with their money and as a consequence they’ll be forced to issue huge numbers of bonds.
MARKETS - Tom Caldwell, chairman of Caldwell Securities
The markets had a spectacular year. The big gains are likely behind us now, but there are still positive underpinnings for 2010, so I see an upside to the market. Inflation is still low. Interest rates are still low. The question of where to find the bargains will be more difficult given the huge gains we saw in 2009. Right now, yield is very important. At the present time it makes more sense to own the bank than to have money in the bank. Most of the major Canadian banks are paying about 4 to 5 per cent. You can’t get that kind of yield on a Treasury bill or a government of Canada bond.
INTEREST RATES - Michael Gregory, senior economist BMO Capital Markets
We think the Bank of Canada will begin the process of "re-normalizing" interest rates in the second half of the year. That means we could see the Bank’s overnight rate move up a full percentage point – perhaps 25 basis points at a time. That means five-year mortgage rates and long-term interest rates could move up by anywhere from 35 to 50 basis points by the end of next year. Domestically low interest rates are working, particularly for car sales and the real estate sector, but the global picture is still a major constraint on the Canadian economy.
Filed under: business by Wolf