Decline in U.S. to slow Canadian economic growth in 2007
Province
TORONTO — The Canadian economy will grow by 2.2 per cent in 2007, down from 2.7 per cent this year, as weakness in the U.S. economy slows demand for Canadian exports, TD Bank is predicting.
However, the Canadian consumer is expected to take up some of the slack, helping to offset the decline in the United States.
“A large part of this resilience can be traced to solid gains in personal disposable income, which in turn reflects the expectation that Canada’s labour market will remain tight, putting further upward pressure on wages,” TD economist David Tulk wrote in a report released yesterday.
“Consumers also stand to benefit from the low level of interest rates and they will receive an extra boost from an expected 50 basis points of rate cuts administered by the Bank of Canada in the second quarter of 2007.”
In 2008, the Canadian economy is expected to grow by 3.2 per cent.
The one element of weakness that Tulk identified for the Canadian economy was residential investment, which has fallen the past two quarters.
“While a further decline is expected in each of the next three quarters, activity will level off by the second half of 2007,” Tulk wrote.
“Despite this decline, Canada’s housing market is on track for a soft landing with little direct impact on the consumer.”
Asked about the TD outlook, federal Finance Minister Jim Flaherty acknowledged that Canada “has certain challenges which we are conscious of — the appreciation of the Canadian dollar vis-a-vis the American dollar, U.S. housing prices, potential increases in protectionism as a result of the Doha round [world trade] negotiations not continuing.”
However, Flaherty said that Canada’s economy “has been remarkably resilient despite the significant weakness in the American economy. So we’re comfortable with respect to where we are, and we’re looking forward to continued good news in Canada over the next few years.”
© The Vancouver Province 2006