Canadian economy to grow 1.7%, Conference Board says

July 16, 2008
Financial Post
Written by: Paul Vieira

Mark Blinch/ReutersThe GreenField Ethanol plant in Chatham, Ontario, April 10, 2008. Energy-related products account for a rising share of Canada's manufacturing shipments.

OTTAWA - The battered manufacturing sector will find some relief in the coming months as the Canadian dollar is expected to remain stable and "de-link" itself from the rise in commodity prices, the Conference Board of Canada said Wednesday in its summer economic outlook.

Its outlook projects Canada's economy to grow 1.7% this year - a far more bullish prediction than the Bank of Canada, which on Tuesday revised downward its growth forecast to 1% this year.

"Canada's economy has been a mix of very strong consumer spending held back by a weak trade sector, a trend that has continued right through the early months of 2008," said Pedro Antunes, the conference board's director on national and provincial economic forecasts, in a statement outlining the think-tank's outlook.

"Luckily for manufacturers, the loonie seems to have stopped riding the coattails of rising energy prices," he added. "The Canadian dollar is expected to remain relatively stable over 2008 and 2009, just shy of parity with the U.S. greenback. This de-linking between rising commodity prices and the value of the loonie is a factor in the Bank of Canada's decision to stop cutting interest rates."

The Canadian dollar reached parity with the U.S. dollar on Tuesday on general weakness in the U.S. currency. The meteoric rise in the Canadian dollar, along with higher energy prices, has forced manufacturers to shed tens of thousands of jobs this decade, particularly in Ontario and Quebec.

Modest U.S. growth, coupled with a stable Canadian currency, is set to provide relief for the Canadian export sector, the outlook said, and help boost Canada's economic growth in 2009 to 2.7%. The Bank of Canada has forecast growth next year of 2.3%.

The board did acknowledge that employment gains in Canada are expected to slow. Governments will be limited in what they can do to boost economic fortunes, the board said.

Generally, the conference board tends to be more bullish than other economic forecasters.