The economy is in for a “bumpy” year in 2007, with growth expected to slide because of weaker U.S. demand, the Canadian Chamber of Commerce predicted Wednesday.
It sees annual growth slumping to 2.4 per cent next year from an estimated 2.8 per cent this year. Growth will be particularly slow in the first half of the year, but will gather steam in the second half.
The chamber also expects interest rates to drop in the spring, and the pace of job creation to ease next year.
“The fundamental source of weakness in Canada's near-term economic outlook is the slowdown that is gripping the U.S.,” the report said. “Because Canadian exports to the U.S. represent close to 30 per cent of Canadian real gross domestic product, any decline in demand south of the border will be felt in Canada.”
Domestic demand will continue to drive growth. Even that will slow, though, as residential construction cools and consumers spend less as the pace of job creation moderates.
The chamber sees business investment in machinery and equipment and non-residential construction remaining strong amid robust earnings and a low cost of capital.
Trade, however, is a different story. The report said U.S. demand will remain muted through the first half of next year — a blow to many Canadian factories.
“Bearing the blunt of the fallout will be Canada's export-intensive manufacturing sector which is already struggling to adjust to a strong Canadian dollar, competition from low-cost overseas producers, and high raw material costs,” the chamber said.
But as the U.S. economy rebounds in the second half of next year, so will growth in Canada.
The Chamber expects regional disparities will continue next year as western provinces lead growth.
The pace of job creation, meantime, will soften. The chamber expects the unemployment rate to hit 6.4 per cent from 6.3 per cent this year.
The Bank of Canada is seen cutting interest rates by a cumulative 50 basis points in the spring of next year, while the Canadian dollar is seen trading in the 86-cent to 89-cent (U.S.) range in 2007.
© The Globe and Mail
