There is hope, BMO economist says
May 27, 2009 by Carolyn Yates
While the recession is not yet over, slow economic growth is not far off, said Kenrick Jordan, senior economist, BMO Capital Markets, during the APMA-AUTO21 conference in Hamilton, Ont.
Indicators that the recession will be over at long last include improvements in the housing market, stabilized financial markets, slower losses and more business expenditures. Consumer spending will also be a key factor in economic development.
In the past, consumers spent more freely. But looking forward, Jordan expects to see consumers try to decrease debt and increase savings before increasing spending.
“We have seen some indication that things are starting to pick up,” said Jordan. “Still, we expect consumers will be a little more frugal in future.”
This impacts the level of business investment, and thus auto parts makers, he explained.
“The manufacturing sector is still in a recession, however, things have shown improvement as of late,” said Jordan. “We expect profits to remain weak through 2009 with a modest improvement in 2010.”
The recovery, which will be sluggish when it comes, will be assisted by government aid, lower oil prices, improvement in the housing market, elimination of excess inventories and additional measures to improve the functioning of the financial system. Inflation, oil prices and the strength of the dollar will also play a part.
At the beginning of the recession, exports weakened initially as a result of a strong Loonie first, and subsequently as a result of the economy.
“A weak dollar later on would help boost exports and help strengthen our economy,” said Jordan.
For auto parts makers, lower sales, weak prices throughout the supply chain and restrictions on raising funds will continue to negatively influence the industry. However, there is hope for the future. Looking forward into 2010, Jordan said that there will be some growth and production, though it will be much more restrained than before. Still, he focused on continual development and improvement.
“People have to focus on offshore markets. It would be important for auto parts suppliers to have a global reach.”