Recession will be mild, analyst predicts

The current recession is shaping up to be a mild one, causing one analyst to revise “up” her outlook for the Canadian economy in 2002. Speaking to the Canadian Insurance Accountants Association recently in Toronto, global economic strategist Sherry Cooper predicted that despite the “knee-jerk reaction” of the markets to September 11 and the “lingering negative impact on overall productivity”, this would not likely be a prolonged downturn in the market.

“The U.S. economy was already teetering on the brink of recession. September 11 just pushed it over the edge,” Cooper says. And, with the U.S. recession came recession elsewhere, including Canada which is particularly vulnerable given its heavy reliance on trade with the U.S. This is the first recession truly led by the business community, she notes, pointing specifically to the capital decline following the “blow-up” of the Nasdaq, when capital fell to 40% below capacity. Canada has not seen the same benefits from technology stocks because of the concentration of telecommunications companies, the weakest sector in technology. We need “Microsofts and IBMs”, Cooper says.

She expects that increased focus on security and defense in the wake of September 11 will have a positive impact on the technology sector. In fact, stock markets overall could see increased investing as money “parked” in liquid assets such as money market mutual funds could make its way onto the market. She cautions investors to anticipate the turnaround rather than waiting for it. “If you wait until all the moves are positives, you’ve missed the rebound.” However, she adds, investors should be looking at a five-year horizon at least, given the volatility of markets. “This will be a period of tremendous wealth accumulation…but fasten your seatbelts, the volatility will remain.”

Cooper is also concerned with Canada’s declining dollar, saying “at the rate we’re going, the Canadian dollar could be $0.50 (versus the U.S. dollar) within eight years”. She predicts that a common North American currency is in the future, with the real question being, “at what rate will we convert?”