25 November 2008

OECD forecasts 0.5-per-cent Canadian contraction

This article is extracted from the 25 November 2008 edition of “globeandmail.com”.

Next year will be a harsh one for Canada's economy, the Organization for Economic Co-operation and Development says in its latest forecast.

Canada's economy will contract by 0.5 per cent in 2009, the unemployment rate will rise, government deficits will balloon, and the country's balance sheet will weaken significantly, the OECD says in its economic outlook for 30 industrialized countries….

Canada's export sector has been slowing for over a year, but the economy has held up because of strong demand inside the country, led by consumers. That strength will dissipate next year, the OECD says.

It projects private consumption will fall 0.6 per cent in 2009, after several years of growth well over three per cent a year...

It says the country's unemployment rate will rise from a low 6.1 per cent in 2008 to 7.0 per cent next year. The work force will shrink by 0.6 per cent next year, after 1.4 per cent growth this year.

Governments will fall into deficits amounting to 1.3 per cent of the country's gross domestic product – a stark reversal after years of continuous surpluses for the country's governments as a whole.

But Canada is in good shape to handle the recession, the OECD points out. Banks and the housing sector are in “relatively good shape,” and so far, governments have not had to bail out any major companies….

The contraction expected in Canada's economy is in line with the slump expected for the entire OECD area, which is forecast to contract 0.4 per cent in 2009….

As for the United States, output will fall during the first half of 2009, but should gradually pick up as the credit crunch resolves itself, the housing slump bottoms out, and lower interest rates help stimulate the American economy, the OECD said….

Economists have quickly ratcheted down their expectations for Canada's economy lately. The Bank of Canada officially expects 0.6 per cent growth this year and next, but Governor Mark Carney said last week that the next official forecast will be lower than that….