Things are looking up for the world economy after some forecasters this fall worried about global recession.
“This is not a recession environment,” said Tim O’Neill, the Bank of Montreal’s chief economist. “Sluggish growth, yes, but growth nonetheless.”
While the risk of global recession is still here, O’Neill said it has decreased. He spoke to an agricultural outlook conference here sponsored by the Bank of Montreal and the George Morris Centre, based at the University of Guelph, Ont.
In Canada, weak commodity prices have kept earnings down and slowed the economy.
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O’Neill forecasts less than 2.5 percent growth in Canada’s gross domestic product for 1998 and 1999 because of high interest rates, lower export demand and continuing low commodity prices.
He sees the Canadian dollar changing little through 1999. During the first half of the year, it may rise over the 66-cent U.S. mark.
But O’Neill believes the U.S. federal reserve will begin to raise rates. If the Bank of Canada lets currency absorb the shock, rather than raising rates, the dollar will drop slightly lower than 66 cents U.S.
A relatively strong U.S. economy plus a weak Canadian dollar is positive for Canada, said O’Neill. If Asian demand starts to bounce back, problems in commodity markets would dissipate.
Asia stabilizing
He sees modest growth in commodity prices in the second half of 1999. The U.S. economy is slowing, but has been supported by strong consumer spending, decisive action by the federal reserve, and a sense that Asian economies are starting to stabilize, said O’Neill.
A strong U.S. dollar relative to exporters’ currencies has led to a record trade deficit in the U.S. This will keep growth in GDP under two percent in the first half of 1999. But he foresees the U.S. economy to grow by more than three percent in the second half of 1999.
Japan’s economy is showing signs of recovery, said O’Neill, after its worst recession since the Second World War.
He pointed out several factors that could change his forecast, including another financial crisis in an emerging market, recession in the U.S. or serious problems brought on by computer malfunctions in 2000.
