Outlook for 2008-09

  • The current Conservative government is likely to survive its full term to October 2009. The Economist Intelligence Unit expects the next election to return another Conservative minority government.
  • The opposition Liberal Party\’s new environmental policy initiative, based around a carbon tax, could, if successful, establish a platform for an election campaign later this year.
  • The downturn in the US and the strength of the Canadian dollar will cause Canadian real GDP growth to slow to 1% in 2008 but recover to 1.9% in 2009.
  • The Bank of Canada (the central bank) signalled the end of its monetary loosening at its last meeting and, with inflation climbing to 2.2% in May, we therefore now expect no further changes until the second half of 2009.
  • Given continued global inflationary pressures, particularly from oil prices, we have revised up our forecast for headline inflation in 2008 from 1.7% to 1.9%.
  • The strength of the Canadian dollar, given no further interest rate cuts this year and continued strong oil prices, has led us to revise up our exchange-rate forecast for 2008 to an average of C$1.04:US$1, from C$1.08:US$1.

Monthly review

  • The Liberals have again refused to provoke an early election, allowing contentious immigration reforms to pass through parliament.
  • Stephane Dion has launched the Liberals\’\”green shift\”policy platform, which includes a new carbon tax on the use of fossil fuels.
  • The Bank of Canada surprised the markets on June 10th by holding its target overnight lending rate at 3% rather than cutting, abruptly changing course on monetary policy and citing the mounting threat from inflation.
  • The federal government surplus was on target for fiscal year 2007/08, at C$10.2bn (US$9.5bn), according to data from the Department of Finance.
  • A sharp fall in US vehicle sales has led to continued decline in the Canadian automotive sector, and on June 3rd General Motors announced the closure of its truck assembly plant in Toronto.
  • The Canadian dollar remains close to parity with the US dollar, but has strengthened by more than 1% since the June interest rate decision.
  • The first-quarter current-account balance has been revised from a deficit to a surplus, largely owing to revisions to investment income data.
  • A new trade agreement was signed between Canada and Colombia on JuneĀ 7th, as part of increasing trade links with Latin America.