8 Economic Insights from Benjamin Tal

CIBC’s chief economist, Benjamin Tal spoke at a Mortgage industry event last week. He is always an interesting speaker and provides insight on not only the Canadian economy, but how the ripple effect of world economies will impact us. I have summarized Benjamin’s key points below.

1. The recession is over, but we will pay for what the US Fed is doing. Interest rates will rise and deficits will drag on Canada’s economy
2. The next wave of US mortgage resets will peak in 2011, but fortunately these mortgages mostly sit on lender’s balance sheets and have not been securitized. This will help limit the global impact.
3. We will see consumers spend and borrow less over the next five years. Part of this is due to fear and part is due to lending criteria becoming more strict
4. The bank of Canada will have no choice, but to wait for the US to start raising their interest rates. If Canada were to increase rates earlier it would cause our dollar to appreciate and put our already fragile recovery in jeopardy
5. We do not have the evidence to support we are in a housing bubble. The fact that people are taking advantage of low interest rates shows the government’s stimulus is working as it should. I found this one particularly interesting considering you can not open a news paper these days without the words real estate bubble appearing somewhere.
6. Expect interest rates to start climbing by 2-3% in the 3rd quarter of 2010. Remember, in the past  interest rates have gone up far quicker than they went down.
7. We are in much better shape than our US neighbours. We have 3 times more cash savings per capita and this money is waiting to be redeployed.
8. Canada will outperform all other G7 countries in growth in 2010.

All in all it was a rather positive outlook by Mr. Tal. Of course only time will tell if his predictions are correct.

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