Ottawa, ON — Surging consumer spending and strong business investment are driving Canada’s economic performance, but a declining trade balance is removing billions of dollars from real gross domestic product (GDP) and will restrain growth to 2.5% in 2005, according to the Conference Board’s Canadian Outlook Summer 2005.
"The domestic economy outperformed expectations early in 2005 as Canadian consumers opened their purse-strings, although they often paid using a credit card," said Pedro Antunes, director of economic forecasting. "On the downside, rising import and falling export growth are eroding overall economic gains."
The Conference Board’s June 2005 Index of Consumer Confidence survey supports continued strength in the domestic economy. While overall confidence barely moved, consumers were more optimistic about their current financial situations and more enthusiastic about making big-ticket purchases such as homes or cars.
The strong gains in consumption and business investment are increasing demand for imports, while exporters are still adjusting to the strength of the Canadian dollar. The resulting decline in the real trade balance will remove nearly $16 billion from the economy in 2005.
The economic outlook for 2006 is more balanced, with real GDP growth forecast to come in at 2.9%. Interest rate increases expected to begin this fall will ease consumer demand from its unsustainable pace. Export growth is forecast to rebound and import growth to slow as the value of the loonie stabilizes and the business sector completes its adjustment to a higher dollar.