Country Report Canada September 2009

Outlook for 2009-10

• We expect an election in late 2009 or early 2010, depending on a resolution to the employment insurance debate. The outcome is uncertain but is more likely to deliver a minority Liberal administration than a Conservative one.
• General government finances will turn to deficits in 2009 and 2010, of 2.4% and 4.1% of GDP respectively, as expenditure, in particular for unemployment insurance, rises and falling corporate income tax returns bring down revenue.
• The central bank's main policy rate will remain fixed at 0.25% in 2009 as inflation hovers at around 0%. In the second half of 2010, rates will rise by 100 basis points.
• Real GDP is forecast to contract by 2.6% in 2009 owing to a decline in investment and exports. Higher commodity prices, fiscal stimulus and a reprise in stockbuilding will lead to a recovery of growth to 1.2% in 2010.
• We forecast an average exchange rate of C$1.15:US$1 in 2009, reflecting the decline in oil and commodity prices. We expect the loonie to appreciate steadily in the forecast period, which will weaken the export recovery.

Monthly review

• The Liberals and the Bloc Quebecois have joined forces in an attempt to defeat the minority Conservative government. However, elections are not yet a foregone conclusion as they will need support from the New Democrats.
• Mr Harper has taken significant steps towards cementing the Tories' control of the legislative process by nominating nine party loyalists at the Senate.
• The prime minister's trip to the northern territories has demonstrated that the government is determined to protect Canada's interests in the Arctic.
• Rising deficits have forced the two main western provinces of Alberta and British Columbia to make revisions to their budgets.
• Government policy towards foreign investments is being tested by PetroChina's proposed acquisition of a majority stake in two oil sands projects in northern Alberta.
• A recovery in housing sales, together with the solid performance of the oil and gas sector, has supported economic growth in the second quarter.
• Buoyant capital market business and the rebounding housing market in the second quarter have buoyed Canada's banking sector profits and strengthened its capital base.
• The strength of the Canadian dollar and weaker US demand have had a severe negative effect on export performance.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;70;10;49
NAICS Code: 52;72;212;22;11