Canada's economic growth to slow sharply next year - bank

30 September 2010 18:20  [Source: ICIS news]

TORONTO (ICIS)--Canada’s economic growth will slow sharply in 2011, mainly because of the end of government stimulus measures, a weakening housing market, as well as low US consumer demand that will hurt Canadian exports, a bank said on Thursday.

Toronto-based CIBC bank said it expected Canada’s real GDP to grow 1.9% in 2011. This was down from the bank’s previous projection of 2.5% growth, and compared with the government’s 3.2% growth forecast in its budget.

However, despite the softer growth outlook, the government should stick with its plans for fiscal tightening, at least for the time being, said CIBC chief economist Avery Shenfeld.

“Only if the Bank of Canada [the country's central bank] were forced to take rates back to zero would it be appropriate to postpone a much-needed, if gradual, path back to fiscal rectitude," he said.

“At this point, Canada is not the US or Europe,” he added.

Canada had started raising interest rates, presumably to prevent growth from being so brisk that inflation broke out, and as such it made no sense “to be stepping on the monetary policy brake” while at the same time providing fiscal stimulus, he said.

Canada has raised interest rates three times since June – the first G7 country to hike rates after the recession.

CIBC’s forecast came as federal statistics agency Statistics Canada said that the country’s GDP fell 0.1% in July from June - the first decline in 11 months.

Manufacturing, retail and wholesale, and construction and forestry all posted decreases.

Craig Alexander, chief economist for Toronto-based TD Bank, said the latest data suggested a sharper-than-expected deceleration in GDP growth in the third quarter.

But like CIBC, Alexander said even though growth would be slower, new fiscal stimulus packages were not needed.

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By: Stefan Baumgarten
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