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ECONOMY: Canada’s growth to slow significantly to around 2%, say two banks
        (AlbertaIndex, January 21, Monday) --- Two banks have predicted that Canada’s economy will slow significantly to around 2% this year as a result of the slowdown in the US.

        RBC expects Canada’s economy to grow by 2.1 per cent in 2008, down from 2.6 per cent in 2007, while the Bank of Nova Scotia believes it will slump to 2 per cent or less over the next two years.

In its latest economic forecast, RBC blames the forecast slower growth on trade weakness caused by the high value of the Canadian dollar and problems in the US, as well as recent credit tightening in both economies in the near term.

“The improvement in Canada’s terms of trade has been an important factor in supporting the domestic economy,” said Craig Wright, RBC senior vice-president and chief economist.

“Due to the stronger performance of export prices relative to import prices, Canadians have enjoyed greater spending capacity from these export revenues. However, import volumes have been growing at a faster rate than exports, resulting in the overall trade sector weighing down real GDP growth.”

RBC expects the drag from the trade sector in 2008 to be partially offset by a combination of the boost in terms of trade, the strong labour market, rising wages, the one percentage-point cut in the GST and unemployment near a 33-year low. These factors are also expected to support consumer spending through 2008.

But RBC said Canada had a bright spot compared with its southern neighbor. While the US housing market is in a precipitous decline, Canada’s housing sector is expanding at a strong pace with home prices continuing to rise.

The bank warns that recent credit market tightening poses a clear downside risk to near-term growth. It is anticipated that the Bank of Canada will lower its overnight rate by 75 basis points early this year to address this risk and the impact of weakening US demand on Canada’s economy.

The Bank of Nova Scotia predicted that the world’s major developed economies are expected to experience “a significant weakening in production and job creation through the first half of 2008 followed by a lengthy period of convalescence.”

“Canada’s performance will be bolstered by significant fiscal stimulus, stronger consumer fundamentals and still-buoyant commodity exports, though growth is unlikely to average above 2.2% over the next two years,” it said.



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