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Canadian Economy

The Canadian economy has bounced back stronger than ever, houses are flying off the market before people can even go see them.
What does this all mean, supply is low and demand is high.
With the prices high, people still can afford to buy, how will this summer end, most likely with more bidding wars and upset buyers.
One has to remember once you sell high you have to buy and the chances are you will buy high.

June 12,2011
US recession to hit Canada hardest 

The U.S. economy is already in recession and that will cause a slowdown in the Canada in the first half of this year, BMO Capital Markets said today in its forecast for the year ahead. 

BMO economists aren’t predicting a recession for Canada but expect the economy will grind to a halt by the second quarter before picking up momentum again in the second half. Growth for the whole year in Canada is expected to come in at 1.4 per cent compared to 2.6 per cent last year, Reuters reports. 

The Canadian economy soared last year on a high-flying loonie and strong commodity prices while the U.S. economy sagged, and many economists now say the States is either in a recession or perilously close to one, for the first time since 2001. 

The U.S. economy has been hammered by the credit crunch spawned by the collapse of the country’s subprime mortgage sector and big writedowns in related securities, which reached its peak last August. 

The Conference Board of Canada this week predicted real gross domestic product in the U.S. would grow by only 2.1 per cent this year, trailing Canada’s expected growth of 2.8 per cent in 2008. 

The slowdown prompted U.S. President George W. Bush to outline a plan Friday of about US$145 billion worth of tax relief to stimulate the economy. 

But there are positives amid all the doom and gloom, said Doug Porter, deputy chief economist with BMO Capital Markets. 

U.S. core inflation remains relatively low, he said, giving the U.S. Federal Reserve room to aggressively cut interest rates if it needs to. 

“There’s room for Washington to cut taxes or to increase spending,” Porter said. “It’s not as if policy makers’ hands are tied.” 

But unlike the Fed, Canada’s central bank may not feel the same urgency next week to trim its key lending rate as it tries to strike a balance between tempering an overheated economy and staving off a downturn. 

The Bank of Canada last month cut its interest rate by a quarter point as expectations for the economy worsened. 

The bank had raised its overnight rate to 4.5 per cent last July — before the loonie reached parity with the greenback in September en route to a record US$1.10 in November — to rein in Canada’s booming economy. 

Prime Minister Stephen Harper and Finance Minister Jim Flaherty have warned of an expected slowdown in the Canadian economy, signalling any major new tax cuts or spending programs in future budgets are unlikely. 

Talk of a U.S. recession’s impact on Canada has some north of the border worried about job losses, particularly within the manufacturing sector in Ontario and Quebec. 

A U.S. recession would pinch Canada — in particular the manufacturing sector — since most of its exports of lumber, autos, machinery and petrochemicals are destined for the States, The Canadian Press reports. 

Canada heading for recession, say economists

Canada is headed into a worse recession than anyone expected, one that could last until almost 2010, said the country’s top economists on Monday.

Staid financial watchers, who usually speak in measured tones, almost screamed the R word in two separate events Monday.

Don Drummond, chief economist and senior vice-president for the TD Bank Financial Group, expects the economy to shrink for more than a year before starting to recover. (CBC) “At this point, if this kind of volatility keeps up, I think we’re looking at a much more serious downturn than a mild recession that most of us are talking about,” said Doug Porter, with BMO Capital Markets, at a meeting of senior economists in Toronto.

Canada faces a financial perfect storm of a sputtering U.S. economy, tumbling oil prices and falling domestic demand that will conspire to hurt the country’s growth prospects for the next few months, they said.

“[We’re] forecasting Canadian and U.S. recessions, plus 100 basis points of [Bank of Canada] and Fed cuts that could come at any time. This is not just made-in-U.S.A. weakness as Canada faces its own home-grown recession signals,” Scotiabank economists Derek Holt and Karen Cordes said in a morning commentary.

A recession is commonly defined as two or more quarters of negative GDP growth.

If Scotiabank’s forecast is correct, the Bank of Canada would cut its overnight lending rate to two per cent from three per cent and the U.S. Federal Reserve would chop the fed funds rate to one per cent from the current two per cent level.

In Toronto, these practitioners of the dismal science were decidedly more dour as to their expectations of the national economy even into the next year.

TD Bank’s Don Drummond said he sees the economy shrinking until late 2009 and then only gradually recovering.

On the campaign trail for the Oct. 14 election, Prime Minister Stephen Harper said that while the country’s economic fundamentals were relatively strong compared with other countries, Canada still might need to work up a strategy to fight a possible slowdown.

“We are also watching to make sure that any actions that are taken [elsewhere] don’t have any rebound effects on us, so we are putting some secondary plans in place if that becomes necessary,” he said at an event Monday morning in Ottawa.

Global oil prices fell below $90 US a barrel at the start of the week; other commodity prices have likewise slipped in recent weeks in the face of slowing world economic growth.

Canadian housing prices have begun to slide as well, although the country will not face a home sector deterioration along the lines of what occurred in the United States, Scotiabank said.

Finally, exports to the United States will dry up as American demand for Canadian products evaporates, economists said.

Scotiabank currently has the Canadian economy growing 0.7 per cent this year and 1.4 per cent in 2009. This prediction, however, was made on Sept. 9, before the full force of the Wall Street financial meltdown was evident.

BMO Capital Markets expects the economy to grow 1.7 per cent in the July-to-September period but then contracting by 0.4 per cent in the final three months of the year.

Along with Scotiabank, BMO has Canada’s economy growing in the 2009, up 1.0 per cent.

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