U.S. Slowdown Hits Canada but No Recession Seen: Conference Board

(Video: AP • Text: The Canadian Press/Conference Board of Canada)

Canada faces weaker economic growth next year as the risks of a prolonged U.S. slowdown further weaken exports and feeble global growth impacts the resource sector, says the Conference Board of Canada.

The U.S. turmoil is holding Canada's projected economic growth for this year to 0.8%, the think-tank said Wednesday. But the country will avoid a recession, according to the Conference Board's autumn outlook.

“Living beside a troubled neighbour is taking its toll,” commented chief economist Glen Hodgson.

“Massive declines in the trade sector have shredded Canada's economic growth, and raw material prices have fallen off their peak levels. Still, the domestic economy has enough momentum to keep Canada out of a recession.”

Nevertheless, “signs of malaise are creeping into the outlook,” the Conference Board adds. “While the manufacturing sector continues to bleed jobs steadily, other sectors have also seen an erosion in the growth of jobs in recent months.”

Highlights from the Conference Board Report:

Turmoil in residential markets will hinder U.S. consumer spending until the second half of 2009. Still, real U.S. GDP growth will advance by 2 per cent this year before slipping to 1.7 per cent growth in 2009.

• Despite the massive banking sector bailout by the U.S. Treasury, the U.S. financial crisis adds downside risk to the forecast. U.S. households and businesses could retrench further and for longer than we have assumed in this outlook.

• Canadian auto exports are being hit hard. A real decline of 19 per cent is expected this year, in line with a steep drop-off in U.S. vehicle sales.

• While there is still momentum in Canada’s domestic economy, our near-term economic outlook has been revised down. Real GDP growth of only 0.8 per cent is forecast for 2008, followed by a modest 2.2 per cent gain in 2009.

• Job growth has waned recently—and not just in manufacturing. This, combined with lacklustre confidence, will take a bite out of the recent heated pace of consumer spending growth.

• Volatile commodity prices and waning confidence are holding back business investment decisions. Despite having fallen off from their summer peak, commodity prices will still post a 20 per cent gain for 2008.

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