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ECONOMY: Conference Board forecasts Canada to weather US downturn, to grow by 2.8% this year
        (AlbertaIndex, January18, Friday) --- As a “model of stable growth”, the Canadian economy will weather the downturn in the US to expand by about 2.8% this year, said the Conference Board.

       

In its latest quarterly forecast, the Canadian Outlook report, the board presented the following short-term national outlook:
        - Despite a slowdown in job growth in December 2007, the US economy is expected to avoid a recession. Still, growth in US household spending will be very weak over the first half of 2008.
        - While Canadian exporters continue to cope with weak demand south of the border and a high-flying loonie, there is plenty of momentum in Canada’s domestic economy. Real final domestic demand is forecast to expand by 3.4 per cent this year.
        - The federal government’s economic statement in late November provides a surprise—nearly $15 billion in new fiscal stimulus to shore up household spending and investment in 2008.
        - A strong dollar, pressure on retailers from cross-border shoppers, and another cut to the federal goods and services tax will significantly douse consumer price inflation—to just 1.3 per cent this year.
        -A strong domestic economy coupled with a lack of inflation will keep monetary policy neutral in 2008. The bank rate is expected to remain unchanged until early 2009 when the U.S. economy recovers and monetary policy tightens in the US and Canada.
        -Record-high oil prices will boost overall energy investment even with weaker natural gas drilling and Alberta’s new royalty regime.
        “As long as the US averts a recession, Canada’s domestic economy will remain largely impervious to woes afflicting our largest trading partner,” said Pedro Antunes, Director, National and Provincial Forecast.
        Canadian domestic demand, which averaged 4.3 per cent growth annually for four years, is still forecast to expand by more than three per cent in each of the next two years. Many of the positive conditions that have stimulated Canada’s domestic economy remain in place, such as strong job growth and wage gains. Furthermore, recent changes, such as tax reductions announced by the federal government in October 2007, will maintain the momentum.
        The outlook for overall corporate profits is bullish for 2008, thanks largely to high resource prices. Strong profitability, combined with announced reductions in corporate taxes, appears to have reignited private investment by firms.
        The possibility of a US recession poses the greatest downside risk to the Canadian forecast. Nonetheless, the Conference Board expects the US to skirt a recession, thanks mostly to continued growth in consumer spending, and investment spending that has held up well in spite of the turmoil in American housing and financial markets.



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