TORONTO, Dec. 17 /CNW/ - In a presentation earlier today moderated by
ScotiaMcLeod Equity Trading Director Fred Ketchen, Scotiabank Chief Economist
Warren Jestin was joined by Scotia Capital's Director of Portfolio Strategy
Vincent Delisle and Currency Strategist Stephen Malyon who shared their views
on what 2009 and 2010 will bring for the global economy, capital markets and
currencies.
    In the 2009-10 Economic and Market Outlook Report titled Heading South
for the Winter Mr. Jestin discussed the challenges that will be faced by the
Canadian, U.S. and global economies.
    "Global economic activity is receding rapidly, despite unprecedented
government actions to support credit markets and inject big doses of monetary
and fiscal stimulus to revive consumer, business and investor confidence,"
said Mr. Jestin. "The seismic shock delivered by the U.S. sub-prime mess to
world financial markets has now triggered retrenchments in North America,
Europe and Japan and has substantially undermined economic prospects in
emerging economies. Global growth is unlikely to exceed 1.5 per cent in 2009,
the weakest performance since the early 1980s."-  The U.S. economy contracted in the third quarter and will likely
       continue losing ground through much of 2009 before embarking on a
       protracted period of convalescence extending through 2010.

    -  With economic retrenchment becoming more pervasive across sectors and
       more synchronized across nations, there is bound to be an escalation
       of pro-growth initiatives in the months ahead.

    -  We expect Canadian output to contract 1.2 per cent next year, with
       much of the weakness concentrated in Central Canada. Overall, next
       year's retrenchment is likely to be about half the setback recorded in
       the U.S., with the prospect of a slightly stronger recovery in 2010.In the report, Mr. Delisle shared his views and analysis of what is to
come for capital markets.
    "Government bonds and cash have been the dominant assets in 2008 as they
overly benefitted from the growing sense of investor panic. As soon as
confidence comes back, however, investors are likely to leave the over-priced
comfort of safety and rotate into corporate bonds and equities," said Mr.
Delisle. "From a risk-reward standpoint, we believe investors will have the
opportunity to move up the risk curve in 2009 by adding to their equity
exposure and reducing cash. Our recommended asset mix is biased towards
equities as we expect greater returns from that asset class both in the short
and long term."-  Although we expect weak economic data, profits recession, budget
       deficits, and interest rate cuts to dominate headlines for most of
       2009, financial markets will focus on how long the ongoing recession
       lasts, and look for signs of activity picking up by 2010.

    -  Although the timing of any pending rebound is debatable, we believe
       the longer-term risk-reward outlook has dramatically shifted in favor
       of equities.

    -  The S&P 500's 10-year return stood at negative 23 per cent at the end
       of November, well below its historical average of 103 per cent. Such
       an attractive long-term entry point has only occurred two other times
       in the last 80 years. In the short term, however, any bottoming
       process will remain fragile and investors should remember that
       retesting the lows is very common in bear markets.During the presentation Steve Malyon discussed what we can expect from
the loonie and the U.S. dollar for the next year, as well as how currencies
will be affected globally.
    "The U.S. dollar has been a principal beneficiary of the ongoing
financial market dislocation, as investors have scrambled into the safest,
most liquid assets, while also growing disillusioned with the global
decoupling hypothesis," said Mr. Malyon. "The abrupt weakening in global
economic growth, lower administered rates across the G10 and ongoing risk
aversion are expected to continue supporting the U.S. dollar over the next
couple of quarters, while undermining cyclical, commodity sensitive currencies
such as the Canadian dollar. However, as we move through 2009 and into 2010 we
expect the U.S. dollar to resume weakening."
    Mr. Malyon adds that the Canadian dollar is expected to perform
relatively well later in the forecast period. Canada stands in a relatively
favourable structural position, and we also expect a significant rebound in
crude oil prices over the second half of 2010.-  The liquid U.S. treasury market and the U.S. dollar's eminent role in
       international business and financial transactions have also supported
       the currency as the credit crisis has intensified. Cyclical currencies
       such as the Canadian dollar have been vulnerable in this environment.

    -  Higher volatility and a flatter global interest rate structure will
       damage the economics of the carry trade, suggesting the FX/equity link
       will be looser in 2009.

    -  The Canadian dollar is expected to outperform in 2010 as crude oil
       prices recover and the USD feels the pull from the United States'
       sizeable structural imbalances.A replay of the conference call is available by calling 1-800-408-3053
(local: 416-695-5800) and entering passcode 3275143. A copy of the report and
presentation can be found on the economics page of www.scotiabank.com.

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.

    A subsidiary of Scotiabank, Scotia Capital offers lending, investment
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