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Canadian economy muddles along in 2012 and 2013

Ottawa – Canada’s domestic economy has softened and its major trade partners are too weak to pick up the slack, limiting growth in real gross domestic product (GDP) to less than 2% this year, according to The Conference Board of...


Ottawa – Canada’s domestic economy has softened and its major trade partners are too weak to pick up the slack, limiting growth in real gross domestic product (GDP) to less than 2% this year, according to The Conference Board of Canada’s Canadian Outlook – Autumn 2012.

“The influence of a grim global environment, coupled with a heavy dose of fiscal restraint, will result in Canada’s economy muddling along through the rest of this year and into 2013,” said Pedro Antunes, director, National and Provincial Forecast.

“The swift post-recession rebound that occurred in 2010 and 2011, driven by a strong domestic economy, has mostly expired through the first half of this year. Recurring crises stemming from the euro zone, along with some false starts from the US economy, have eroded consumer confidence and slowed business investment and job creation.”

Canada’s real GDP growth will slow to 1.8% this year, while growth of 2.3% is forecast in 2013. If a further European sovereign debt crisis can be avoided, or at least contained – and if the US begins to address its fiscal deficit seriously – Canada’s economy is expected to achieve growth of 2.6% in 2014.

Public sector spending – a strong, steady contributor to the economy over the past decade – is now being curtailed as federal and provincial governments try to bring deficits under control. As a result, the government sector will detract from economic growth for the first time since the late 1990s, and growth in public sector spending will remain minuscule over the medium term.

The weakness in government spending is partly due to a substantial decline in public infrastructure spending. But with the end of the stimulus program, business investment is picking up the slack. Strong investment in resources has bolstered private capital investment in machinery and structures back to its pre-recession peak; going forward, growth is expected to remain strong.