While economic growth in Canada is expected to slow in 2008, the U.S. economy will be in for the hardest hit this year, say some of Canada’s leading economists.
“I’m not prepared yet to say that the U.S. economy is in recession, but I’m not far from it,” said Sherry Cooper, chief economist for BMO Capital Markets at an economic outlook presented in Toronto today. She called for growth to fall below 2% for the year, in large part due to the weak housing market. “The U.S. is the centre of the subprime mess and I do believe we are in crisis,” said Cooper, adding that the unprecedented decline in the U.S. housing market isn’t over.
While she predicted growth of less than 1% during the first half of the year, she expects the U.S. to rebound somewhat in the second half due to expected aggressive easing of interest rates by the U.S. Federal Reserve. She said the effects of the poorly performing U.S. economy will spill over into Canada and countries around the world.
Don Drummond, chief economist for TD Bank Financial Group predicts Canada will have a weaker year than in 2007, with growth of 1.9%. Despite calling for housing and consumption to remain strong, Drummond said Canada can expect some softening of its labour market. As well, he expects commodity prices to flatten, leading the Canadian dollar to drop to 94 cents by the end of the year.
Around the world, growth in developing countries is expected to remain strong, according to Warren Jestin, chief economist at Scotiabank. While growth in China is expected to slow, it will still remain solid at between 10% and 10.5% due to an “awakening of consumer desire” as incomes rise in that country. He also predicts growth in India of about 8%. And he called for Russia to perform well. “They have the resources that the world wants.” However, he pointed out that increasing protectionism by the U.S. is a possible wildcard for global economic growth.
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