Although there are still plenty of clouds on Canada’s economic horizon, the evidence that an economic recovery is starting to take hold is definitely easier to find than it was just two months ago.

From a global perspective, the most recent International Monetary Fund (IMF) World Economic Outlook published on July 8, 2009 stated that: “The global economy is beginning to pull out of a recession unprecedented in the post-World War II era.”

And while the IMF noted that the pattern of recovery was likely to be sluggish, it revised its forecast of global economic growth in 2010 up from 2.0% to 2.5%.

On July 10, 2009, the IMF’s more upbeat outlook for the global economy was reinforced by the Organization of Economic Co-operation and Development (OECD). It stated that the “OECD composite leading indicators for May 2009 point to tangible signs of improvement in the outlook for most OECD economies” and that “potential recovery signals are emerging in Italy and France, with indications of troughs emerging in Canada, the United Kingdom, the United States, China and India.”

Closer to home in the U.S., the Conference Board Leading Economic Index increased by 1.2% in May following a 1.1% increase in April. These were the largest back-to-back increases in more than eight years.

In addition, although the Institute of Supply Management’s May 2009 Manufacturing Purchasing Manager’s Index (PMI) at 44.8 had not broken above the critical 50 level, indicating that manufacturing was still contracting, it has been steadily increasing since the beginning of the year.

In Canada, the Ivey Purchasing Manager’s Index jumped by an unexpectedly strong 9.8 points in June following a 5.3 point drop in May.

Moreover, the most recent (June) Canadian Manufacturers and Exporters (CME) Business Conditions Survey reported that the percentage of firms reporting lower orders had dropped in the month, as did the number of firms planning to reduce their workforces.

In light of these positive economic signals emanating from several credible sources, and the fact that most of the recent Canadian economic statistics have been stronger than expected, the odds are definitely better than 50/50 that the Canadian economy will start to recover in the second half of 2009, and probably in the current quarter.

Manufacturing Purchasing Managers Index – Canada vs United States

Data sources: Ivey Purchasing Managers Association of Canada and the U.S. Institute of Supply Management.
Chart: Reed Construction Data – CanaData.