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OECD says Canada still in recession, recovery to trail G7 countries

OTTAWA - An international economic think-tank is declaring Canada still in recession, an assessment that is at odds with the Bank of Canada and most private sector analysts.

OTTAWA - An international economic think-tank is declaring Canada still in recession, an assessment that is at odds with the Bank of Canada and most private sector analysts.

The Paris-based Organization for Economic Co-operation and Development says Canada's economy will continue to shrink in the current quarter at an annualized rate of two per cent, in contrast with the Canadian central bank's contention that the recession has ended.

In July, the Bank of Canada predicted the current quarter - the July, August September months - will see a 1.3 per cent growth.

Since then, many private sector economists have estimated the short-term rebound could even be stronger at above two per cent annualized.

"I don't know too many people who think that (the OECD forecast)," said Avery Shenfeld, the chief economist with CIBC World Markets.

"It doesn't sound current with the data," pointing out that Statistics Canada said last week the Canadian economy began growing, although only a smidgen, as early as June.

The OECD projection is also far more gloomy about Canada in the fourth quarter as well, putting growth at a minuscule 0.4 per cent, compared to the Bank of Canada's three per cent growth projection.

The think-tank's new numbers are actually an improvement from its June estimates, but if correct, it will mean Canada will trail the G7 nations in its recovery, at least this quarter.

The organization offered no analysis about Canada in its report posted Thursday.

However, some economists suggested the OECD may be using older data from earlier this summer that is out of date and might affect the think tank's growth projection's for the Canadian economy.

The OECD was more sanguine about the global economy, saying parts of the world are headed for an earlier recovery than previously thought, particularly Japan and countries that use the euro currency.

Still, it cautions that the pace of the rebound will likely remain modest for some time to come.

It also describes the outlook for the United States as stable and estimates the U.S. economy will grow by 1.6 per cent on an annualized basis in the current quarter.

Canada, it says, will see gross domestic product shrink by 2.5 per cent this year as a whole, slightly better than its June forecast of a 2.6 per cent retreat, but still below the Bank of Canada's estimate of -2.3 per cent.

Presenting the OECD's interim outlook at a news conference in Paris, economist Jorgen Elmeskov cited improving financial conditions, a rebound in trade and an end to inventory destocking by industry as factors pointing to faster economic recovery in the OECD's 30 member countries.

However, the recovery remains fragile, Elmeskov said.

"Recovery looks to be at hand for the OECD economy at large, but it's important not to get carried away," Elmeskov said. "The green shoots need careful nurturing by policy, if they are to become strong sustainable plants."

Elmeskov said the recovery would probably be bumpy, with ups and downs.

The Organization for Economic Co-operation and Development now expects the Group of Seven leading industrial countries to contract by 3.7 per cent this year, compared to the 4.1 per cent contraction the organization forecast in June.

In Europe, the economies of the countries sharing the euro are now expected to contract by 3.9 per cent this year compared to the OECD's June forecast of a 4.8 per cent drop. Japan's economy will shrink by 5.6 per cent this year, the OECD said, compared to the previous outlook of a 6.8 per cent contraction.

The U.S. economy, meanwhile, is still expected to shrink by 2.8 per cent this year as a whole, unchanged from the June forecast.

Economic recovery remains threatened by high levels of unemployment in OECD countries, Elmeskov said.

"The risk is that unemployment saps consumer morale and spending," Elmeskov said, adding that the OECD's new forecasts foresee a further rise in joblessness.

-With files from The Associated Press

 
 
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