OECD sees signs of 'broad economic recovery'

The world economy is showing definite signs of recovery, according to data released Friday by theOrganization of Economic Co-operation and Development.

The Paris-based OECD said its composite leading indicator of 29economies rose to 97.8 in July from 96.3 in June.

"Clear signals of recovery are now visible in all major seven economies, in particular in France and Italy, as well as in China, India and Russia," it said.

"The signs from Brazil, where a trough is emerging, are also more encouraging than in last months assessment."

The OECD said Canada's reading improved from 96.4 in June to 97.7 in July. That was still 2.2 percentage points below last July's level.

The composite leading indicator tries to identifyturning points in economic activity about six months beforethe change actually takes place.

Canada to outperform, CIBC says

Canada will lead the U.S. and other G7 economies in growth next year, CIBC World Markets saidFriday. But the growth will be small and the recovery lengthy, it said.

In an economic report, the bank saysthe "relative resiliency" ofthe Canadian consumer will play a big role in helping Canada outperform other economies.

Canada's financialsystem and mortgage market were in better shape than most,so this country was better able to absorb the shocks that rattled financial markets.

CIBC economists say that left Canadian consumers able to take advantage of the low interest rate environment engineered by the Bank of Canada. The central bank on Thursday left its key overnight interest rate at just 0.25 per cent.

"Canadians can count their blessings, from a sounder financial system, a federal government that can afford to run deficits after years of fiscal rectitude, and a household sector that, while facing sharply increased bankruptcies, has been less beaten up on housing and job prospects," CIBC World Markets chief economistAvery Shenfeld wrote.

Export growth to fade in 2010

Still, CIBC economists see2010 growth at a tepid 2.0 per cent as export growth fades because of a strong Canadian dollar and U.S. protectionism. Still, that will be a half-percentage point better than the U.S. growth next year and more than twice as good as most Eurozone economies.

Canada's economy won't return to robust health until 2011, with a forecast growth rate of 3.8 per cent.

The CIBC report says just overhalf of the output growth in the second half of this year and all of next year will be due to government spending, with the biggest impact of the stimulus taking place in 2010.

After that, interest ratesaround the worldwill likely begin rising again as the recovery takes hold. Shenfeld says even then, Canada will be in better shape than most to deal with higher rates.

"Even under the now more pessimistic outlook from the finance minister, the erosion in Canada's federal debt-to-GDP ratio is nothing like the debt wall hit in the early 1990s, and miles below what could end up being an 80 per cent debt-to-GDP ratio for the U.S.," he said.

Finance Minister Jim Flaherty revealed Thursday that the federal deficit in the current year would come in more than $5 billion higher than previously thought. He also said the country would not emerge from a deficit position until 2015 two years later than forecast.