Financial Update For Dec. 14, 2009

TSX -40.64

• DOW +65.67

• Dollar -.85c to 94.35cUS

• Oil -$.67 to $69.87US per barrel.

• Gold -$6.30 to $1,119.50USD per ounce

Positive economic growth likely in 2010 and 2011, says RBC Economics

The Canadian Press - After a challenging year, the economy is set for a recovery in 2010, according to a new forecast by RBC Economics.

It says although the economy contracted at an average of 2.5 per cent this year, the stage is set for positive growth in 2010. RBC predicts real gross domestic product will rise by 2.6 per cent next and will continue to expand in 2011, at a 3.9 per cent clip. The report suggests the peak of stimulus spending will occur in 2010, with improving credit conditions fuelling growth next year and in 2011.

In addition, consumer spending is projected to increase by 2.3 per cent next year before accelerating to 2.7 per cent in 2011.

However, the bank says the jobless rate is expected to remain high at about 8.7 per cent in 2010 before falling to 7.8 per cent in 2011.

"With the financial crisis behind us and the U.S. economy on the mend, Canada's economic growth is expected to rise steadily throughout the next year," said Craig Wright, RBC senior vice-president and chief economist.

"While challenges remain, a peak in stimulus and infrastructure spending across the federal, provincial and municipal governments, along with low interest rates, should result in a sustained recovery."

Flaherty notes stimulus money flowing as recovery kicks in

By Nelson Wyatt

MONTREAL — Federal stimulus projects are starting to snowball just as the economy is recovering from the global financial meltdown, Finance Minister Jim Flaherty said Friday.

Flaherty says cash will flow faster in 2010 for federally funded construction projects, now that numerous engineering studies and environmental assessments are being completed.

“They are snowballing, if I can put it that way,” he said in Quebec City.

“They are gathering momentum as we go forward, as engineering studies are done, as environmental assessments are done. So there’ll be a lot of cash flow next year into the Canadian economy.”

Earlier this year, in the depths of the recession, Ottawa earmarked billions for infrastructure projects.

The opposition spent months warning that the money wasn’t going out quickly enough, while the government made procedural changes to speed up the delivery process.

The Liberals say Flaherty’s comments now prove the stimulus process encountered hiccups.

“He’s admitting that we were right all along,” Liberal critic John McCallum said in an interview. “Very little of the money has gotten out.”

He drew parallels with the government’s treatment of allegations of prisoner abuse in Afghanistan.

“This is a dishonest government,” McCallum said. “They told Canadians lies about (Afghanistan) detainees and about the infrastructure money.

“And then when irrefutable facts came out to demonstrate these were lies, they spin the story in a different way. In both cases, the facts now show that they were not telling the truth on infrastructure just as they were not telling the truth on detainees.”

He said it would have been possible to get the money out faster if the government had followed a Liberal plan to transfer gas taxes directly to municipalities, who would have been able to move ahead with already approved projects.

The finance minister, meanwhile, said there are encouraging signs that the recession is petering out.

“We have seen improvements in business confidence, certainly. We are seeing an increase — some increases — in private-sector investment, although we are not comfortable yet that we’re at a place where we can stop the stimulus measures,” Flaherty told a news conference.

“The job situation has also stabilized in the last several months, which is always encouraging.”

Dale Orr, a Toronto-based economic consultant, said Flaherty had “put a bit of flesh” on earlier statements which left the impression projects were going forward and there was immediate economic growth.

“The starting point for a lot of these programs is exactly what he’s now mentioning,” Orr said.

Douglas Porter, deputy chief economist with BMO Capital Markets, said Flaherty seemed to be sticking to his message “that there isn’t going to be a whole lot of new measures next year.

“In fact, next year’s budget may be extremely thin.”

Porter said one of the biggest criticisms of fiscal policy is that by the time the problem is identified and the money starts to be spent, the economy has already started to recover.

“This may well be a case where the maximum effect of the fiscal stimulus actually hits after the economy has started to emerge from recession.”