The current economic downturn will mark the longest recession since the Great Depression, according to Paul Taylor, senior vice-president and chief investment officer at BMO Harris Private Banking.

After recently compiling the firm’s latest economic outlook, Taylor has concluded that positive economic growth will not likely set in until 2010.

“If the recession started in December of 2007, we’re already 18 months into this,” he said in an interview on Thursday. “We don’t believe that we will be looking at positive economic growth data until 2010, which means that this will be fully 24 months worth of recession.”

But Taylor is confident that global economic growth will pick up next year, accelerating in the second half of 2010 and into 2011. In recent months, he has seen positive signs that set the stage for a recovery.

The three key factors necessary in order for a sustainable economic recovery to occur include stabilization in the global financial services sector, creditworthiness beyond the financial sector, and an improvement in leading economic indicators, according to Taylor.

Stability in the financial services sector has improved significantly in recent months, he said. In particular, he was encouraged by Goldman Sachs Group, Inc.’s report of strong second-quarter earnings on Monday, and stronger than expected quarterly results from J.P. Morgan Chase & Co. on Thursday.

“We’re not completely out of the woods yet,” Taylor said, “but we’re on much better footing.”

On the possibility that struggling U.S. commercial lender CIT Group Inc. may collapse, Taylor said the financial sector has likely rebuilt enough strength to effectively cope with such an event.

“I think the system is significantly stronger,” he said. “It’s probably quite manageable.”

In terms of creditworthiness beyond the financial services sector, Taylor said uncertainty still remains. But he was encouraged by General Motors’ emergence from bankruptcy protection last week.

“We have a sense that there is a better outlook, for in particular the auto industry, which is such a critically important provider of jobs,” Taylor said.

Leading economic indicators, meanwhile, have shown very clear improvements in recent months, according to Taylor. In particular, he was surprised to see the ISM manufacturing index rebound as quickly as it has.

Until a stable economic environment is achieved, Taylor does not expect the stock market to experience meaningful gains. He expects that the S&P/TSX composite index will not surpass 11,000 until next year, and considers it possible for the benchmark index to reach the 12,000-mark during the year.

“We are going to need to see a better economic backdrop before we can really get comfortable with moving to 11,000 and 12,000,” Taylor said.

In the meantime, he expects markets to continue displaying significant volatility.

In dealing with clients, Taylor said the biggest challenge of the past year has been learning to separate emotion from objectively acting in a client’s best long-term interests.

“One of the key messages is that managing money has to be done on the basis of objective analysis,” he said, adding that it’s important to remind clients that the events of the past year have involved extraordinary circumstances.

“We are unlikely to see this level of volatility as we move forward,” he said. “We need to manage money based on realistic expectations for volatility and return.”

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