(December 15 – 16:30 ET) – Merrill Lynch research analysts expect the world economy of 2000 to feature accelerating growth, lower inflation and low interest rates. The firm’s economists forecast global GDP growth at 3.3% for next year, above consensus expectations, and up from an estimated 2.7% in 1999.

Canada’s growth is expected to reflect the positive global markets with the country’s real GDP expected to average 3.5% in 2000. They believe that the U.S., Canada, Europe and Japan will be joined by robust economic recovery in emerging markets with Asia growing 6% and Latin America growing 3.3%.

Senior Economist Karim Basta said that Canada’s economy will benefit from the economic momentum expected for the United States next year. He expects recent strong employment growth and further gains in commodity prices to lead to 3.5% GDP growth in 2000, very similar to 1999’s robust 3.7% rate.

Basta expects that the federal government’s February budget should bring about a combination of tax cuts and spending increases. Furthermore, he expects another 50 basis points of Bank of Canada tightening next year explaining that the BoC is likely to raise interest rates in line with the Fed in 2000, after matching only one of the three Fed hikes in 1999.

The Canadian dollar should start the year on a strong note due to further advances in commodity prices as the global economy continues to recover. Greater fiscal stimulus should be offset by tighter monetary policy.

Steve Garmaise, Research Director for Merrill Lynch Canada, said the positive outlook for Canada’s economy, interest rates and corporate earnings should drive the market higher in 2000. While Canadian economic fundamentals are solid, Mr. Garmaise warned that a serious decline in the buoyant share prices of Nortel and BCE (together, 23% of the TSE 300) would damage the Canadian market’s ability to rise.

Garmaise also expects Canadian equities to benefit from rising corporate profit estimates. Bottom-up consensus forecasts call for TSE earnings of 353.50 in 2000, a 25% increase over the 1999 estimate of 282.50. Merrill Lynch’s quantitative team recently noted that Canada has enjoyed the highest estimate revisions of anywhere in the world.
-IE Staff