Ottawa, ON — Canada’s economic growth will remain sluggish this year until more vigorous private sector investment and household spending resumes in the United States, according to The Conference Board of Canada’s Canadian Outlook – Winter 2011.
“US consumer spending and business investment are improving, due in part to on-going policy stimulus. But they are so far below normal levels that this growth has not been able to spur the US recovery into a gallop. Moreover, a resolution to the European debt crisis remains critical to keeping the US and global economy on a path of recovery,” said Pedro Antunes, National and Provincial Forecast.
In Canada, economic growth has lost much of its vigour as households and governments have become overextended. After advancing by 2.8% in 2010, real gross domestic product (GDP) will grow by only 2% in 2011, down 0.5 percentage points from the Autumn 2010 outlook.
Household spending lifted Canada’s economy out of recession, but the exuberant spending in late 2009 and early 2010 faded by the end of the year. Mounting consumer debt is forcing Canadians to trim spending, and sizable federal and provincial deficits will result in a more austere period of public spending. Household spending is expected to rise by 2.6% this year.
Job creation will remain modest in the first few months of the year, resulting in less than 1% growth in real after-tax income in 2011. In addition, the public sector is expected to contribute very little to economic growth over the foreseeable future.
A positive effect of a strong Canadian dollar, which averaged just over US$0.97 in 2010, is the rebound in business investment in machinery and equipment. Prompted by the high dollar and increased business confidence, capital investments rose by 14% in 2010, and they are forecast to post double-digit growth again in 2011. On the other hand, the strong loonie will limit the recovery in Canadian exports to the United States. The Canadian dollar is expected to remain relatively stable in 2011, hovering near parity throughout the year.