Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.
Canadian Consumers Seen Scaling Back as Rates RiseFriday, July 16, 2010 > 13:42:40
(Reuters – Louise Egan)
Canadian consumer spending will have to slow to more sustainable levels this year, causing economic growth to lose momentum, a report by the Conference Board of Canada said on Wednesday.
The Bank of Canada will likely continue to raise interest rates but the pace of monetary tightening may be gradual due to uncertainty caused by European debt woes, soft U.S. demand, and a strong Canadian dollar, which limits exports.
"Consumer spending has been outpacing income since the recovery began in the third quarter of 2009," the think tank said in its latest outlook. "While this has helped to get the economic ball rolling, households will need to slow down their spending growth to below income gains over the coming quarters," it said.
Spending by homebuyers taking advantage of rock-bottom interest rates and healthy retail sales helped lift the country's economy from recession in the fourth quarter of last year, posting growth of 4.9% annualized. In the first quarter of this year growth zoomed to 6.1%. The surprising performance prompted the Conference Board to raise its 2010 growth forecast to 3.6% in Wednesday's report from 3.2% previously.
It sees growth slowing to 2.9% in 2011 as fading government stimulus spending and a slowdown in housing construction is offset partially by a modest recovery in U.S. household spending, which will boost demand for Canadian goods such as cars and lumber.
Trade figures for May showed imports grew faster than exports, a sign of heavy consumer and business spending. The small trade deficit will continue to exert a drag on growth throughout 2010, but the Conference Board argues an export recovery is underway, "led by a surge in auto and parts exports that is helping to resuscitate the manufacturing sector in Canada."