TORONTO, Jan. 14 (Xinhua) - - While the benefits of record low interest rates and huge stimulus packages will drive solid growth in the Canadian and global economies during the first half of 2010, the economy risks returning to sluggish growth in the second half of the year and into 2011, according to a bank report released on Thursday.
The report by the Canadian Imperial Bank of Commerce (CIBC) notes that the actions of central bankers and finance ministers, combined with a rapid recovery in the financial markets, points to a stronger economic performance in Canada and the U.S. in the first half of 2010. But growth could be restrained in the second half of the year as governments turn off the stimulus taps and U.S. consumers continue to deleverage.
CIBC Chief Economist Avery Shenfeld said in the bank's latest "Economic Forecast Report" that Canadian manufacturing and resources will benefit from the upswing in global growth and inventory rebuilding in the first half of 2010 but will subsequently feel the combined pinch of decelerating foreign demand and an overvalued Canadian dollar. .
The report notes that China might also slow its Treasuries buying if it starts allowing a modest yuan appreciation later this year. With huge deficits also needing funding in Europe, global bond yields will come under pressure. While outperforming Treasuries for 2010 as a whole, this environment should see 10-year yields reach nearly four percent in Canada in a flattening sell-off ahead of the first rate hikes, before easing off towards year end.
"The stock market could get a decent year's return in the first six months, when year-on-year earnings comparisons will be against the depths of the recession, macro growth rates will be fairly healthy, and resource prices could still be climbing," he adds.
"While comparable fixed income yields won't be as low as they are today, the gap between Toronto Stock Exchange (TSX) dividend yields and those on bonds is very narrow, and expectations for dividend growth in 2010 and beyond should see yield-hungry investors supporting another leg higher for the TSX."
