Country Report Canada November 2008

Summary

The new Conservative government will enjoy a more secure grip on power, having won an increased number of seats. Our central forecast expects the administration to survive until the next scheduled election, in October 2012.
The economy will slow sharply in the next 18 months, averaging just 0.6% real growth in 2008 and 0.4% in 2009. We expect the beginnings of recovery in the US and global markets in 2010, which will lift Canadian growth to 1.3%.
The weaker economy and the Conservatives electoral promises have increased the likelihood of a budget deficit in fiscal year 2008/09. We forecast a deficit for the 2009 calendar year and a small surplus in 2010.
Slowing domestic and global markets will reduce inflationary pressure in the rest of 2008. We then expect inflation to fall to an average of 2.1% in 2009, and to return to the 2% mid-point of the central banks target range in 2010.
With the domestic economy deteriorating and weaker inflation, we expect the central bank to cut rates by a further 25 basis points by the end of 2008.
The Canadian dollars recent sharp depreciation has been partly reversed, but we still expect it to fall, on average, to C$1.15:US$1 in 2009, from C$1.06:US$1 in 2008. The currency will strengthen in 2010 to C$1.10:US$1, as oil prices rise.

The Conservatives, led by the prime minister, Stephen Harper, won the general election on October 14th, but fell short of an outright majority in parliament.
After a particularly poor showing, the Liberal leader, Stephane Dion, has announced that he will step down after a party leadership election.
The Bank of Canada cut its policy rate by a total of 75 basis points in October, after a dramatic deterioration in the global financial crisis, signalling a new phase of looser monetary policy. Rates had been unchanged since April.
The latest official data show evidence of the economic slowdownboth output and retail sales fell by 0.3% in August and Daimler announced closure of a truck factory in Ontario, with the loss of 720 jobs.
The government has announced purchases of up to C$25bn of mortgages, and guaranteed wholesale bank borrowings with terms longer than three months, to maintain the banking sectors international competitiveness.
The sharp fall in commodity prices since late June has caused a dramatic slide in the Canadian dollar. The currency fell below C$1.25:$US1 on October 22nd, for the first time in more than three years.

Source: Country Report

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