Country Report Canada April 2009

Outlook for 2009-10

• The deepening recession will weaken the government and we expect this to lead to a vote of no confidence in the second half of 2009, triggering another general election. On current performance, we expect the Liberals to win.
• A Liberal government in the latter half of 2009 will have won power from the political centre-ground and will be less inclined to tax cuts than its Tory predecessor, but we expect no radical changes in policy direction.
• The outlook for the domestic economy is bleak, weighed down by shrinking investment and private consumption, and we expect real GDP to fall by 2.4% in 2009. Government spending will lift the economy to 0.8% growth in 2010.
• New government spending will be delayed by arguments over budget implementation but, with rising unemployment and falling economic activity, will lead to deficits of 2.5% and 3.9% of GDP in 2009 and 2010 respectively.
• We expect the Bank of Canada to hold rates at 0.5% until mid-2010, when monetary policy will gradually be set to neutral as the domestic economy revives, and there will be a full 1% of rises by the end of that year.
• Demand for US dollars and weak commodity markets will limit the Canadian dollar to an average of C$1.20:US$1 in 2009, and push the trade balance into deficit, but 2010 will see stronger global demand and a stronger currency.

Monthly review

• New spending promised in the January budget is being delayed by arguments between the two main parties over accountability, although a C$3bn fund for infrastructure spending was approved by parliament in March.
• Controversy has again erupted over Canadas military presence in Afghanistan after a spate of casualties. Public unease was stoked further by a new Afghan law sharply circumscribing the rights of Shia women.
• The central bank governor has played down the need for quantitative easing, just a month after the bank announced it was considering such measures.
• The government has given its ailing carmakers some aid, advancing C$250m to Chrysler at the end of March, but with strict conditions. GM Canada and Chrysler (Canada) must prove their viability or face bankruptcy.
• Ontarios government tabled a tax-reforming budget at the end of March, with a drop in the corporate income tax rate and integration of the provincial sales tax (PST) with the federal governments goods and services tax (GST).
• According to Statistics Canada, real GDP shrank by 0.7% between January and December. Meanwhile, the rate of unemployment surged to 8% in March, its highest level in seven years, up from 7.2% in January.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;60
NAICS Code: 336;52