Canada’s economic recovery expected to slow

The current pace of Canada’s economic recovery is expected to ease in the second half of 2010, according to the Conference Board of Canada‘s Summer 2010 Canadian Outlook. Increased consumer confidence and spending, along with increased government spending, led the recovery in the first part of the year, which helped to bolster construction and job growth. The economic recovery has also boosted sales for businesses, helping to rebuild profits. However, the Conference Board says that the current pace of domestic spending is unsustainable, as it has been outpacing income since the recovery began in the third quarter of 2009. Households will need to slow down their spending to below income gains over the coming quarters, the Conference Board explains.

Real gross domestic product is expected to advance by 3.6 percent in 2010 – 0.4 points higher than forecast in the Spring Canadian Outlook. The Conference Board forecasts that the pace of economic recovery will slow to the 2.5 percent range by mid-2011, and 2.9 percent by the end of 2011, with a slightly better performance expected by 2012.

This forecast remains dependent on a modest recovery in the United States. The Conference Board says that, while Americans have loosened their purse strings, the recovery is still quite fragile and will remain so until we see stronger employment and income gains in the U.S., which will have a positive impact on Canadian exports.

Recovery in Canadian exports is already under way, led by a surge in auto and parts exports that is helping to resuscitate the manufacturing sector in Canada, according to the Conference Board. Despite the Board’s expectations of a slow recovery in U.S. consumer spending, real auto and parts exports will expand by nearly $19 billion this year, thanks to vehicle sales in the U.S. recovering from the rock-bottom levels registered in 2009. Overall, real export volumes are expected to expand by 7.7 percent this year, and 6.2. percent in 2011.