Canadian Economy to Avoid Recession

Top economists from the Conference Board of Canada said Wednesday the country’s economy will sag but not slip into a recession.

The board expects gross domestic product to soften substantially from its recent steady clip and expand by only 0.8% in fiscal 2008, down from the 1.7% the board forecast in its summer outlook. That growth GDP level, though minimal, will be enough to keep Canada out of two straight quarters of negative economic growth – the standard definition of a recession.

“Living beside a troubled neighbor is taking its toll. Massive declines in the trade sector have shredded Canada’s economic growth, and raw material prices have fallen off their peak levels,” said the board’s chief economist, Glen Hodgson. “Still, the domestic economy has enough momentum to keep Canada out of a recession.”

According to the report “signs of malaise are creeping into the Canadian outlook” as the manufacturing sector continues to bleed jobs steadily. The board also points out to the negative impact of falling commodity prices as a further impediment to consumer confidence.

The Ottawa-based business think-tank has projected Canada’s GDP in fiscal 2009 at 2.2%, which is down from the 2.7% it forecast in its previous report. The board also indicated real consumer spending growth will ease to 2.7% in 2009 from the solid 4.5% growth seen in 2007.

While the near-term outlook is gloomy, there is a brighter light for 2010, says the report. The U.S. economy will recover and gain traction. “A rebound in U.S. residential construction and auto sales is expected to bolster Canadian exports, while the domestic economy will experience stable growth. Real GDP would outpace potential, posting real growth of 3.5%.”

The Conference Board expects real net exports to fall by nearly $30 billion in 2008, equivalent to 2.5% of real GDP.

The mainstream predictions all have Canada avoiding the excesses of the overheated American housing market; allowing the country to sidestep the unprecedented economic fallout from the freezing credit markets.

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