Canadian Economic Slowdown Will Be Brief
Weakness in the U.S. economy has had an impact on Canada's economic growth, but domestic demand has helped mitigate the drag.
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 U.S. economy getting a boost from the issuance of tax rebate checks, and commodity prices remaining historically high.
Canada's core inflation rate will trend higher this year but remain below the Bank of Canada's 2% target and stay there through 2009.
Canada's housing market is also poised to cool as soaring prices have driven the cost of home ownership beyond the reach of many families. Housing affordability in most major markets across the country has deteriorated to its worst levels in almost 20 years.
However, the extent of any weakening is expected to be much less pronounced than what is occurring currently in the U.S. as the Canadian market did not experience many of the excesses evident south of the border.
U.S. economic growth to be modest this year, rising 1.5%. Growth is projected to strengthen to 2% in 2009. We believe that the U.S. economy will avoid a contraction this year and should start to see sustained upward growth momentum in 2009.