Decelerating growth

Because Canada is an oil-exporting nation, the substantial drop in energy prices is one of the first market-turning factors market watchers have pointed to in recent months. Also, the CAD’s high level into mid-2006 was a drag on its export picture; demand for Canadian imports has slowed, especially as economic numbers in the U.S. Canada’s primary trade partner — have begun to weaken.

Recent Canadian growth, manufacturing, and trade figures have surprised economists on the downside, which has led some analysts to reduce their 2006 year-end forecasts and 2007 projections.

In the third quarter of 2006, Canadian growth numbers retreated to a weaker-than-expected 1.7 percent gross domestic product (GDP) reading — a sharp drop from 3.6 percent and 2.0 percent growth in the first and second quarters, respectively.

“The annual rate was the lowest increase in three years as the cooling housing and manufacturing sectors and lower government spending offset a minor rebound in exports,” says Amanda Mason, associate international economist at Northern Trust Co.

“We recently lowered our forecasts for 2006 and 2007,” says Jonathan Basile, vice president at Credit Suisse. Originally, Credit Suisse economists saw potential for 2.8 percent GDP growth in 2006, but in light of recent data, that forecast has been revised to 2.7 percent.

Basile originally forecast a 2.6 percent 2007 GDP figure, but now expects a 2.2 percent GDP performance.

Buskas forecasts a 2.6 percent GDP reading this year; a reading below “potential,” which is considered to be at the 3.0 percent mark.