Canada:String of bad economic data raises concerns

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String of bad economic data raises concerns that recovery is long way off SANDRA CORDON Canadian Press

Friday, August 31, 2001 (CP) Canada is in the grip of an economic malaise spilling around the world, Finance Minister Paul Martin warned Friday. (CP) OTTAWA (CP) - Canadians have tightened their grip on their wallets amid growing concerns the economic slowdown creeping around the globe is going to hit home harder than anyone expected. Analysts are scrambling to downgrade their forecasts of economic growth following a string of gloomy reports this week.

The latest came Friday, showing the economy was essentially flat between April and June, growing by only about 0.4 per cent on an annualized basis.

That's the slowest pace seen in almost six years and shocked experts, who expected a report about four times stronger.

Even worse, healthy figures from the first three months of the year were revised downwards to 2.0 per cent GDP growth from the 2.5 per cent previously reported.

And with the giant U.S. economy stumbling along in even worse shape, many analysts who had hoped for overall growth around 2.5 per cent for 2001 now expect two per cent or less.

"All told, the next few quarters will be a long, slow grind," predicted Marc Levesque, senior economist with Toronto Dominion Bank.

No one is suggesting Canada is headed for a recession. But hopes of a quick recovery before year-end have evaporated.

"I don't think the situation is all that bad," said Patricia Croft, chief economist with Sceptre Investment Counsel.

"Numbers are soft, but I think it's premature to talk recession."

Still, Canada is in the grip of an economic malaise spilling around the world, Finance Minister Paul Martin warned Friday.

The latest data "essentially say that we're in the middle of a global slowdown," Martin said in Montreal.

"And while Canada has done better than almost anyone else, we are clearly not immune to the global slowdown."

Despite the uncertainty, Martin repeated that he still favours waiting until next February to bring down his next budget.

Meanwhile, all the gloomy news is adding to consumer uncertainly.

Nervous shoppers slowed their spending growth in the second quarter to about 1.1 per cent - mainly at new car lots, thanks to dealer incentives.

The biggest factor by far in maintaining consumer confidence is the unemployment picture, which in Canada has remained stable at seven per cent.

But if next Friday's jobless report shows jobs are being lost, consumers could become more edgy and do less spending to support the economy.

"The way things are unfolding, it looks like we're going to continue to see weakness in employment conditions," said Levesque.

"So I wouldn't bet on the consumer being the big driver of economic growth over the next couple of quarters and certainly not the driver it has been since the beginning of the year."

Until recently, free-spending shoppers - who built and furnished new homes, bought clothes and cars - helped offset dramatic drops in the manufacturing and technology sectors.

That confidence has been rattled in the face of falling stock markets, continued gloom in the United States and uncertainly in the global economy.

American consumers are also edge, with spending in the U.S. almost flat in July, according to figures released Friday.

Economists hope federal tax reductions and falling interest rates in both countries will keep their GDP in the black through the rest of the year.

And Canada's economy is so closely linked to the U.S. that until it begins to rebound, little can be expected here.

"It's going to be a push to keep growth (above two per cent)," said Craig Wright, chief economist with Royal Bank. "It's still linked to recovery in the U.S. - which is more forecast than fact."

But Canada's economy has likely now hit bottom, although it could hover there for some time, added Mario Angastiniotis, senior economist with Standard and Poor's MMS in Toronto.

"I think the bottom is going to drag out a bit longer than we thought."

Support could come from still more interest rate cuts expected this fall from a suddenly pessimistic Bank of Canada.

After months of upbeat assessments, the central bank shifted gears last Tuesday to warn the economy won't likely recover until sometime next year.

The bank lowered its trend-setting rate for the sixth time this year. It's now down 1.75 per cent in total.

The U.S. Federal Reserve has gone even further, slashing rates seven times to try to kick-start the American economy, where the slowdown first began.

Patience is needed to give all these interest rate and tax cuts time to work through the economy, said Levesque.

"I think the worst is really behind us," said Levesque.

"Our main issue is how long it's going to take (to see a recovery) - but not whether it's going to happen."

http://www.canada.com/ottawa/story.asp?id={768A1EDB-23B8-45C6-919E-A90AC6754F84}

-- Martin Thompson (mthom1927@aol.com), September 01, 2001

Answers

It means substantially fewer Canadian snowbirds visiting the sunbelt states this year. Hmmm, on the other hand maybe its cheaper to go to the sunbelt so that they don't have to pay record heating bills? Maybe its a tossup?

-- Guy Daley (guydaley1@netzero.net), September 01, 2001.

American consumers are also edge, with spending in the U.S. almost flat in July, according to figures released Friday.

Were it not for Cars and Trucks, the U.S. GDP would have declined 1.6% in 2nd Quarter. The fact that spending is flat in July puts the odds that we are already in a recession at almost 100%.

These Canadians are whistling past the graveyard!



-- lael (Lael@badstuff.net), September 02, 2001.


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