Country Report Canada

Outlook for 2008-09

• The Economist Intelligence Unit expects the Conservative government to survive its full term to October 2009. An election held at the end of the term is likely to produce another Tory government, albeit still lacking a majority.
• New data for the first quarter of 2008 have led to a deterioration in economic prospects, and we have lowered our forecast for GDP growth for the year as a whole to 1%, from 1.3% last month.
• In the light of the deteriorating outlook, and in spite of a slight pick-up in inflation in April, we still expect the central bank’s next monetary policy meeting on June 10th to lead to a further cut in interest rates.
• The Canadian dollar, or loonie, shows no prospect of weakening for the remainder of 2008. We now expect the loonie to hold its value in 2008, averaging C$1.07:US$1, and to fall only slightly in 2009, to C$1.09:US$1.
• The strength of the loonie and weakness of the US market will push the current account into deficit of 0.8% of GDP in 2008 and 1.2% in 2009.

Monthly review

• The latest scandal to hit the Conservative government has been the connection between an ex-girlfriend of the foreign minister, Maxime Bernier, and the Hell’s Angels biker gang. Mr Bernier has since been forced to resign.
• The Liberals are seeking to capitalise on the government’s problems. Mr Dion has proposed a new tax policy initiative, which includes cutting taxes that discourage work and investment, and raising a new carbon tax.
• The government has finalised its decision, after appeal, to block the takeover of the space division of a Canadian company by a US weapons maker.
• The latest data show that output shrank by 0.1% in the first quarter of 2008, compared with the previous quarter, while export volumes shrank for the third quarter in a row.
• Strong commodity prices drove the Toronto Stock Exchange’s benchmark S&P/TSX composite index to new highs in mid-May, and the Canadian dollar rose above parity with the US dollar.
• Headline inflation rose to 1.7% in April, year on year, for the first time since November 2007, driven up by fuel prices and slower automotive price cuts. This remains well below the 2% mid-point of the central bank’s target range.
• The industry minister, Jim Prentice, has protested against new security controls imposed by the US authorities, as delays hit crossborder trade.

SOURCE: Country Report