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ECONOMY: Slower growth ahead, but no US-style crisis, says Flaherty
        (AlbertaIndex, July 17, Thursday) --- The Canadian economy will run into the twin headwinds of rising prices and slower growth, but there will be no US-style credit crisis and bank collapses, said Finance Minister Jim Flaherty.
       Speaking at the Calgary Chamber of Commerce yesterday, he presented a comforting message: “Canada’s economic future is bright” and its “economic fundamentals...are solid.”

His message came on the heels of growing concerns that Canada’s economy is starting to hit the skids on rising inflation, slumping real estate prices, tightening credit availability, the failing auto sector and growing bank losses from our exposure to the US subprime mortgage market.

Mr Flaherty said Canada’s recently fast growing housing and credit markets had not grown to “bubble” proportions in the first place. Thanks to sound economic fundamentals, and high energy and commodity prices, the Canadian economy is still drawing in investments and creating good sustainable jobs. The strong loonie has also kept inflation under control by making imports cheaper.

On Tuesday, the Bank of Canada announced that it is maintaining its target for the overnight interest rate at 3 per cent. The operating band for the overnight rate is unchanged, and the bank rate remains at 3.25 per cent.

The bank has forecast Canada’s GDP to grow by one per cent this year, 2.3 per cent in 2009, and 3.3 per cent in 2010.

It said: “High terms of trade, accommodative monetary policy, and a gradual recovery in the US economy are expected to generate above-potential growth starting early next year, bringing the economy back to full capacity around mid-2010.”

The bank warned that the country’s CPI inflation over the next year is expected to rise.

“Assuming energy prices follow current futures prices over the projection period, total CPI inflation is projected to rise temporarily above 4 per cent, peaking in the first quarter of 2009,” it said.

Earlier, RBC Bank said the weakening US economy dragged down Canada’s economic growth in the first quarter.

Predicting the country’s economy to grow by 1.4 percent in 2008, RBC said domestic demand will more than offset the drag of the US economy this year.

Craig Wright, RBC’s senior vice-president and chief economist, said: “The surprise economic contraction will be short-lived as growth prospects for the remainder of the year should brighten, with financial market pressures starting to ease, the US economy getting a boost from the issuance of tax rebate cheques, and commodity prices remaining historically high.”

The bank has predicted that Canada’s strong terms of trade, boosted by rising export prices, will drive economic growth.

“Commodities continue to experience solid demand from emerging markets such as China. Over the past five years, Canada's gross domestic income has outpaced gross domestic product by an average of 1.2 percentage points, also providing steady support for government revenues, corporate profits and the labour market,” it said.

It added that Canada’s housing market will cool in the face of deteriorating affordability.

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