Dollar predicted to reach $1.06 US by end of ’09
Eric Beauchesne
Sun
OTTAWA — The weakening U.S. economy, the strong Canadian dollar and competition from offshore companies are draining the energy out of the Canadian economy, according to Scotiabank.
“The Canadian economy is rapidly losing steam,” it said Monday in its latest global, domestic and provincial forecast.
And the Canadian dollar — buoyed by continuing strong resource prices, as well as Canada’s twin budget and trade surpluses — will strengthen even more, it warns, projecting that the currency — now just below parity — will reach $1.06 US by the end of next year, while the U.S. economy will weaken further.
“Without another injection of fiscal and/or monetary stimulus … recent economic resilience will likely give way to a broad-based weakening in U.S. conditions by year-end,” said Warren Jestin, Scotiabank’s chief economist. “The temporary palliative to consumer spending provided by Washington’s flood of tax rebate cheques will be followed by a relapse in sales once this fiscal stimulus recedes.”
U.S. growth is expected to be 1.5 per cent this year and one per cent next year.
Reinforcing that warning was news of a further slide in a U.S. index of leading economic indicators last month, and a drop in another index of overall business activity there.
“The drop in the index in June, when combined with the downward revision to last month’s … and the Chicago Fed National Activity Index, which remains in recession territory, suggests that the U.S. economy remains fairly weak,” said TD Securities economist Millan Mulraine.
Scotiabank, meanwhile, forecast that Canadian economic growth will slow to just 1.1 per cent, a notch above what the Bank of Canada now expects, and will edge up to only 1.6 per cent in 2009, well below the 2.7 per cent projected by the central bank.
Not only can’t Canada count on a quick U.S. recovery to boost growth here, but the drag from the strong dollar will also intensify, it suggests, projecting that the currency will move above parity this summer and edge up steadily to $1.06 US by the end of 2009.
And the regional economic divide between the robust West and the rest will continue through this year and next despite a modest recovery in all provinces east of Manitoba in 2009.
This year and next the four western provinces will post growth of between 2.4 and three per cent each, led this year by Saskatchewan with three-per-cent growth and next year by Alberta with 2.9-per-cent growth, it predicts.
In contrast, most of the other provinces will post growth of less than two per cent this year and next, with Ontario expanding by just 0.4 per cent this year, the second-weakest next to Prince Edward Island, which will grow just 0.3 per cent, and followed by Quebec, which will expand by only 0.7 per cent. Next year, Ontario will post the weakest expansion at one per cent, followed by Quebec and Prince Edward Island at 1.2 per cent each. New Brunswick will see the strongest growth of the central and eastern provinces, expanding by 1.5 per cent this year and 2.1 per cent next year.
© The Vancouver Sun 2008
