Wednesday, January 14, 2009

Conference Board of Canada Reports

U.S. Downturn Puts Canadian Economy Into Recession

Ottawa, January 14 — The U.S.-led global recession has dragged the Canadian economy into recession in 2009. Canada’s economy is expected to contract for three consecutive quarters, resulting in a 0.5 per cent decline in real GDP this year, according to the Conference Board’s Canadian Outlook – Winter 2009.

“The deepening U.S. recession continues to hurt Canada’s trade sector. The new and perhaps more significant factor dragging the Canadian economy into recession is the impact that much lower commodity prices are having on real income. Lower resource prices, combined with waning consumer and investor confidence and the bleak U.S. outlook, will bring a recession to Canada in 2009,” said Pedro Antunes, Director, National and Provincial Forecast.

The economy will not avoid a recession despite the Conference Board’s assumption of federal fiscal stimulus in the form of tax rebates and increased funds for infrastructure. Canadian business investment and employment will decline this year. The contraction will temporarily reverse Canada’s 14-year trend of tightening labour markets, boosting the unemployment rate to above 8 per cent by the end of 2009. With raw material prices not expected to rebound quickly to 2008 levels, both federal and provincial governments slip into significant fiscal deficits and will be hard-pressed to balance their budgets by the end of the forecast period in 2013.

The U.S. economy, meanwhile, is currently experiencing its greatest contraction since the 1930s. In its U.S. Outlook – Winter 2009, the Conference Board expects real GDP in the United States to contract by 1.7 per cent in 2009, even with a massive fiscal stimulus package.

“Almost every region, industry, occupation and demographic group in the United States is being affected by the current downturn,” said Kip Beckman, Principal Research Associate. “American household spending, which has been a pillar of global demand in recent years, is forecast to drop by 4 per cent in 2009.”

As analyzed in depth in the forecast, the Obama Administration’s stimulus package is expected to have a positive effect on the U.S. economy, helping to prevent an extended recession. A rebound in growth is expected in the second half of 2010, due to the aggressive monetary policy response by the Federal Reserve and fiscal action by the U.S. government. U.S. real GDP is forecast to expand by 2.2 per cent in 2010.

As key U.S. export markets recover, Canada’s real GDP is forecast to rebound to growth of 3.6 per cent in 2010.

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