Sluggish pace predicted for first six months of the year
Eric Beauchesne
Sun
OTTAWA — Slowdowns in housing, government spending and exports have all acted as a drag on the economy, the Canadian Chamber of Commerce said Wednesday as it forecast that growth will be “bumpy” next year — sluggish in the first half before bouncing back in the second.
“Economic growth will be below trend in the first half of the year,” it said, forecasting an annualized 2.2 to 2.5 per cent expansion. “But over the second half of 2007, it will return to a rate that is slightly above the . . . potential growth rate at 2.8 per cent.”
Canada’s long-running economic expansion slowed to a less than two per cent annual pace in the third quarter and will have difficulty getting back up to two per cent in the final quarter, it said, noting that’s well below the 3.6 per cent pace of growth in the first quarter of this year.
Meanwhile, evidence of that slowdown continued to mount with news that slumping auto sales have handed Canadian wholesalers their first back-to-back drop in sales in two years.
Wholesale sales, which account for a bigger share of gross domestic product than the more widely watched retail sales, slipped 0.2 per cent in October to $41.6 billion, Statistics Canada reported.
“Most of the decline was caused by another significant drop in automotive sales, which have fallen continuously since hitting a peak in July,” it noted.
“While the overall trend for the wholesale sector remains positive, it has eased somewhat over the past few months, in line with the general softening of the Canadian economy,” it said, noting overall growth slowed to a 1.7 per cent annualized pace in the third quarter, its slowest pace in three years.
Further clouding the outlook for Canada’s economy was another report from Statistics Canada that said visits here from the U.S., Canada’s largest tourism market, have hit a new record low.
“American residents made fewer than 2.3 million trips to Canada in October, the lowest monthly level for overall travel from the U.S. since record-keeping started in 1972,” it noted. “Canada was also visited by fewer visitors from countries other than the U.S.”
Concerns about border-security measures and delays are blamed in part for what has been a steep drop in visits here by Americans this year, and what to a lesser extent have also been declines in visits to the U.S. by Canadians.
Meanwhile, the chamber warned the slowdown in the U.S. also weighs heavily on the outlook for the overall Canadian economy.
And there’s a risk that the U.S. slowdown, and in turn Canada’s, could be deeper than now expected, it added.
Goods exports to the U.S. have already hit a near two-year low and the trade surplus with the U.S. a three-year low, the business organization noted.
“With demand in the U.S. expected to remain subdued into the first half of 2007, the Canadian trade sector is not likely to rebound soon,” it said, warning that the export-oriented manufacturing sector, already struggling with a strong dollar, competition from low-cost offshore producers and high energy costs, will bear the brunt of the U.S. slowdown.
“However, as the U.S. economy rebounds in the second half of 2007, so will growth in Canada,” said the organization.
“Domestic demand is expected to continue to drive growth in 2007, however, it is expected to moderate from last year’s pace as residential construction slows and consumers become more cautious in their spending habits as the pace of job creation moderates,” it said. “Business investment in machinery and equipment and non-residential construction is expected to remain robust thanks to high levels of retained earnings and relatively low cost of capital.”
Unemployment will average 6.4 per cent next year, up only a notch from this year’s more than 30-year low of 6.3 per cent, while inflation will moderate and the Bank of Canada will cut interest rates by half a percentage point in the spring, said the report. The Canadian dollar, meanwhile, will trade in the 86- to 89-cent range.
Western Canada, particularly Alberta and British Columbia, will continue to top the provincial growth charts in 2006 as high prices for energy and other commodities have generated increased corporate profits, business investment, employment, consumer spending and housing activity, it said. In contrast, the sharp appreciation of the Canadian dollar over the last four years and rising energy costs will continue to weigh on manufacturing-intensive Ontario and Quebec.
© The Vancouver Sun 2006