Recessionary forces will dominate the global economic landscape in 2009, and it will take a “massive effort” from the world’s economic policymakers to pull the economy out of this slump, according to economists at BMO Capital Markets.

In the bank’s 2009 outlook, the economists say they expect the economy to bottom around the middle of 2009, followed by sluggish recovery in the second half and moderate growth in 2010.

BMO economists expect Canadian GDP to drop 1.3% in 2009, with three quarters of negative growth, as the country continues to feel the impacts of lower U.S. spending and the collapse of commodity prices. The bank expects the unemployment rate to rise to nearly 8% by the end of 2009.

Across the country, Central Canada will be hit the hardest. BMO Capital Markets expects real GDP in Ontario to contract by more than 2% as auto production stalls. Western Canada will see a small overall contraction as a growing number of oil projects are delayed. Atlantic Canada is expected to see growth around zero.

“No Canadian province will be fully sheltered from the downturn,” the outlook says.

Such economic weakness will be felt around the world, according to BMO Capital Markets. It expects U.S. GDP to contract by 2.3% in 2009, boosting the jobless rate to 9%.

Economic contractions will also be felt in Europe and Japan, for global GDP growth of just 1% in 2009—the slowest since 1982, the economists say.

Interest rates in both Canada and the United States will remain at very low levels until 2010, according to the outlook. It calls for the Bank of Canada to cut at least another 50 basis points in January, with the potential for more cuts to follow.

BMO expects the major stimulus package introduced by the Chinese government to bolster that country’s economy in 2009, but does not expect growth to surpass 7%.

Slower demand for commodities from both China and India mean prices will continue to suffer into 2009, but will begin to rebound in the second half of the year, according to the outlook.

But even a recovery in late 2009 is not a sure thing, the economists say. They warn that the recovery is largely dependent upon monetary and fiscal stimulus

“If monetary policy remains impotent (due to still-frozen credit markets) or fiscal stimulus is delayed, the U.S. and Canadian recessions would likely deepen, with a recovery pushed into 2010,” the outlook says.

As advice for investors in the challenging year ahead, Jack Ablin, chief investment officer of Harris Private Bank, calls high quality bonds a conservative play with a relatively attractive yield, but adds that investors should stay in shorter maturities. While stocks are cheap on a multi-year basis, he says investors should focus on price-to-sales, not price-to-earnings ratios.

Attractive sectors for investment include health care, consumer staples, utilities, energy and telecom, according to Ablin, while materials and industrials are areas to avoid.

IE