National Bank, Canadian Chamber predict slower economic growth next year

December 20, 2006 Edition of Canadian Business Online:

MONTREAL (CP) – Canada will see “relatively modest” gross domestic product growth of 2.2 per cent in 2007 as the pace of world economic growth moderates and a slowdown in the United States acts as an anchor to expansion here, the National Bank (TSX:NA) predicted Wednesday in its quarterly outlook.

Rapid industrialization in Asia, where powerhouses China and India continue to gain steam, will ensure the continued expansion of the world economy, “albeit at a slower pace,” the bank said in a release.

An American slowdown already in progress “will spread in 2007 as American households become more focused on savings in the wake of the real estate sector’s nosedive,” National Bank said. “Although its fundamentals are among the most solid of all G7 nations, Canada will not be protected from the headwinds blowing south of the border in 2007, with a relatively modest 2.2 per cent growth in GDP predicted.”

Chief economist Clement Gignac said the bank believes a regional divide will continue between the hard-hit manufacturing centres of Central and Eastern Canada and the burgeoning Western provinces in 2007.

As natural resources continue to drive the Western economies, Ontario and Quebec will likely see economic growth under two per cent in the coming year.

The bank said it believes there are interest rate cuts on the horizon, with the “Bank of Canada’s key rate likely to total close to 100 basis points,” which is good news for Canadian households.
A drop in rates will likely produce a drop in the loonie, “which is expected to take a break from its climb of recent years and settle between 85 and 88 cents US before rising to trade on par with the greenback by the end of the decade.”

In another report Wednesday, the Canadian Chamber of Commerce said the economy will be hit by several speed bumps in the first two quarters in 2007, producing slower growth and slightly higher unemployment.

The business lobby group said Canada’s average annual real GDP growth will be 2.8 per cent this year, slowing to two per cent in the fourth quarter. Growth will average 2.4 per cent in 2007 because of the weaker American economy.

In its forecast, the Ottawa-based chamber predicts:

– The national unemployment rate will rise to 6.4 per cent in 2007 from 6.3 per cent this year.