Canada’s economic recession a “marathon,” Scotiabank executive tells CIP Society Symposium

Longevity is a unique feature of Canada’s current recession and the country can expect to go three years without growth, Warren Jestin, senior vice president and chief economist of Scotiabank Canada, told insurance industry representatives attending the CIP Society Symposium 2009.
“This is not a wind sprint, it’s a marathon,” Jestin said of the anticipated length of the global economic upheaval.
Jestin forecasted a 3% decline in Canadian economic growth in 2009. And although Canada might expect to see a 1.5% increase in economic growth in 2010, that would really be “filling up a hole that’s been dug” by the decline in growth this year.
“We’re bouncing along the bottom” of the recession right now, he observed. “The good news [in 2010] will be that there is less bad news.”
The current recession marks a significant contrast from the “pedal-to-the-metal” growth that characterized the Canadian economy prior to 2007, Jestin said.
He said Canada used to “grow 3% or more without breaking a sweat.” With economic growth rates at 3.5%-4%, companies could still do well financially without necessarily gaining any market share, he added.
But the amplitude of the economic change is another peculiar feature of the current market downturn, he said. “In a short space of time, we have gone from full ahead to full reverse,” he said. “Many industrial economies will record their biggest declines in decades.”
In fact, the synchronized nature of the recession is in itself unique, he said. It is unusual for so many industrial economies to be struggling together at one and the same time.
After the collapse of the U.S. housing market, “the regulatory environment is going to change,” Jestin predicted. He noted regulators are already knocking on doors and recommending that companies “control leverage” [i.e. borrowing money to buy]. But this will only serve to “throw sand in the gears of economic productivity,” he said.
Also, in searching for some form of financial safety, investors are locking into long-term bonds, which may, as Jestin put it, “afford the investors a wonderful opportunity to get spanked twice.” Long-term interest rates will get higher, he predicted, which will slow the economic recovery further.