Canada on track for strong rebound

[Oxford Analytica/International] Economic recovery in Canada is likely to exceed that of the U.S.

The IMF in January predicted that Canada would have the highest growth rate of the G-7 countries this year, and this expansion accelerated sharply during the first quarter. The Bank of Canada is now projecting 3.7% output growth this year and 3.1% in 2011

Recession And Reboud. The Canadian recession last year was broadly comparable to the U.S. slump. Real GDP contracted by 3.9% from peak to trough compared to 3.8% in the United States. The decline in industrial production was somewhat worse: Production fell 16.4% against a 14.3% U.S. fall. This discrepancy is attributable to the auto sector, where output fell 35% from its peak in early 2007. However, the Canadian economic rebound looks set to be stronger than that in the United States, in part because households were less overleveraged, a housing bubble avoided and the financial system less burdened by problematic assets.

Sources Of Strength. The Canadian upturn is broad-based:

—Real consumer spending will increase by 2.7% in 2010, compared with 0.2% last year.

—Private fixed investment will rise by 6.4%, after a 14.1% contraction in 2009.

—Exports will jump by at least 7%, recovering from last year’s 14% tumble—despite a strong loonie (a coin worth one Canadian dollar).

—Recovering exports will reduce the current account deficit to $15 billion Canadian ($14.6 billion) this year and $9 billion Canadian next year, a vast improvement on the $41 billion Canadian shortfall of 2009.

—The unemployment rate will dip to 7.8% this year and 7.2% next year, from 8.3% in 2009.