Canada not headed for double-dip recession, board says

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Ottawa - A double-dip recession isn't in the cards for Canada, but the outlook is for little more than sluggish growth and relies on the "brave" assumption the European Union can solve its sovereign debt crisis, the Conference Board of Canada said Thursday.

"The ongoing volatility in equity and commodity markets is a reminder of how fragile the state of the U.S. and global economy remains. While the turmoil is not expected to derail the global outlook altogether, growth has slowed markedly over the last few quarters," said board director Pedro Antunes.

The board is still calling, however, for 2.1 per cent growth in 2011 and 2.4 per cent growth in 2012, relatively unchanged from its outlook in the summer edition of the report.

But for the U.S., it has downgraded its outlook to just 1.5 per cent for 2011 and 2.5 per cent for 2012, still well below the growth that would normally occur at this stage of the business cycle.

"There remains an exceptional degree of risk to the outlook," the board cautioned.

"A sluggish outlook for the United States is not good news for Canada and the economic situation in Europe is even more uncertain and fragile than in the U.S."

The report was issued as European leaders stumble from one apparent misstep to the next in the lead-up to a weekend summit that may or may not occur - according to news reports Thursday - but whose ostensible goal is to substantially address the issues facing the monetary union.

The Ottawa think-tank forecasts that in Canada growth will be hindered by overindebted consumers and governments cutting back on spending. That will be counterbalanced by strong commodity prices that will boost business investment and spur private-sector employment.

The current economic environment will keep the Bank of Canada on the sidelines until late in 2012, as will weak inflationary pressures that will result in the consumer price index increasing by only two per cent in 2012, the board said.

Growth will come as commodity prices bounce back from their recent swoon, driven by demand from emerging markets. U.S. crude oil prices will average US$95 in 2011 and climb to an average of US$97 a barrel in 2012, the board said.

Overall job growth, meanwhile, is forecast to average two per cent in 2012 and 2013, following a 1.7 per cent gain in 2011. The unemployment rate will fall to 6.3 per cent by the end of 2013 from the current 7.1 per cent rate.

The board expects the housing market to soften over the next few quarters, resulting from reduced affordability and reduced consumer confidence. Existing home prices will rise by a much slower two per cent in 2012, while housing starts are forecast to average 186,000, about the same as in 2011.

Business investment in machinery and equipment is likely to slip from strong levels earlier in the year as confidence has been shaken by developments in Europe. Nevertheless, while moderating from just over 13 per cent in 2011 to 6.6 per cent growth in 2012, real business investment should augur well for employment and productivity gains as energy investment wanes but remains at lofty levels, Antunes said.

Trade is expected to contribute "handsomely"to growth, with merchandise export volumes rising at an average annual pace of six per cent over the next two years from 4.3 per cent in 2011, despite the loonie being expected to return to average just over $1.02 US in 2012.

— Postmedia News

Organizations: European Union, Conference Board of Canada, Bank of Canada

Geographic location: United States, Canada, Ottawa Europe

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