Country Report Canada July 2009

Summary

The Economist Intelligence Unit expects another election in early 2010 to deliver a minority Liberal administration, governing from a centrist policy platform.
General government finances will turn to deficits in 2009 and 2010, of 2.1% and 3.7% of GDP respectively, as public finances are weighed down by falling corporate income tax returns and the rising cost of unemployment benefits.
The central bank's main policy rate will remain on hold in 2009 at 0.25% as inflation hovers around 0%, and non-orthodox monetary loosening will be deployed. In the six months from mid-2010 rates will rise by 100 basis points.
We now expect a real contraction of nearly 16% in exports in 2009. However, our outlook for private consumption has improved slightly and we maintain our real GDP forecast of a 2.9% contraction in 2009 and 0.7% growth in 2010.
We now forecast an average 2009 exchange rate of C$1.16:US$1 (from C$1.20 in our last report), reflecting resurgent oil prices and Canada's current lack of non-orthodox monetary loosening, in contrast to other developed economies.

The Liberals, emboldened by an improved showing in opinion polls under their new leader, Michael Ignatieff, are proving to be a growing thorn in the Tories' side.
On June 9th the New Democratic Party (NDP) unseated the incumbent Conservatives in elections in Nova Scotia. The win gives the NDP its first opportunity to form a government in any of the four Atlantic provinces.
The finance minister, Jim Flaherty, indicated in late May that the government now expects to post a record budget deficit of C$50bn (US$43bn) for the current fiscal year, which ends on March 31st 2010.
The federal and Ontario governments have so far provided C$11bn in cash aid to the stricken car firms, General Motors and Chrysler. In return, Canada will gain a small equity stake in both companies.
GDP shrank by 0.1% in April, the ninth monthly decline in a row, and a drop of 3% from April 2008. Activity contracted across a wide front, including manufacturing, energy and retailing.
The Conference Board of Canada's monthly consumer confidence index posted its fourth consecutive rise in June. Housing activity has also picked up. Sales of existing homes have jumped by 28% since January.
The six biggest banks have protected themselves against further economic shocks by raising close to C$15bn in extra capital since last October.

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