Double-dip recession not in store for Canada, CIBC says
July 28, 2010
By Mary Del
The U.S. and Canadian economies will see growth slow over the next six months, but are unlikely to experience a double-dip recession, according to CIBC World Markets’ Recession Probability Index.
The Index, which measures the probability of a recession by examining trends in credit spreads, interest rates and weekly U.S. unemployment benefit claims, finds that the odds of another U.S. recession occurring in the next six months are very low.
"We’re not in material danger of a rude double dip in the next two quarters," says Avery Shenfeld, chief economist at CIBC. "The probability estimate is likely more consistent with a slowdown rather than a true double-dip recession. But, given the uncertainties, fiscal tightening ahead and the potential for a slow economy to be vulnerable to shocks, we will keep an eye on our new indicator nevertheless."
Shenfeld defines a double dip as a downturn after an expansion lasting less than two years. He cites a number of factors that he expects will keep the American economy – and by extension the Canadian economy – from hitting a double-dip, including healthy corporate profits; strong market liquidity; steep bond market curves; and tight corporate spreads.
"Certainly, there are reasons for concern," adds Shenfeld. "The U.S. economy has been propped up by fiscal stimulus that is now winding down. Job growth has lacked its typical post-recession vigour, leaving a household sector swamped with bad mortgages having few reasons to accelerate spending. But there is still a base of ongoing support coming from healthy corporate profits and a wide-open tap on monetary stimulus. That has us projecting a sharp deceleration in U.S. growth, but not an outright recession, with a similar fate in store for Canada."
Shenfeld’s latest Economic Insight’s report is available at http://research.cibcwm.com/economic_public/download/sjul10.pdf.
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