Canada's Economy Not Hurt By U.S. Woes

TD Bank economists forecast Canada's growth will soften, but the economic expansion will continue as a U.S. recession is unlikely.

TORONTO — Canada's economy will not be seriously hurt by the U.S. subprime-mortgage debacle if the American economy avoids recession as expected, the Conference Board of Canada predicts.
TD Bank economists chimed in with a similar forecast Thursday, saying Canada's growth will soften but the economic expansion will continue as a U.S. recession is unlikely.
And a CIBC World Markets analysis said stock markets are showing signs that credit-market troubles are easing, and the benchmark TSX composite index will hit 15,000 by year-end.
The Conference Board business outlook said a robust domestic economy will offset declines in exports caused by the strong Canadian dollar and slowing U.S. demand in sectors such as wood products and cars.
''In addition, most Canadian banks have limited direct exposure to the subprime mortgage market, and should be able to weather the storm,'' said Kip Beckman, principal research associate at the think-tank.
Turmoil in the U.S. housing market is expected to continue until at least the autumn of 2008, dragging down American economic growth, the Conference Board says. But it expects the United States will avoid a recession.
At the investment banking unit of Canadian Imperial Bank of Commerce (TSX:CM), chief economist Jeff Rubin stated that ''we are becoming more confident that the worst in credit markets may now be in the rearview mirror.''
He expects the TSX index, which closed Wednesday at about 14,150 points, will rise to 15,000 by the end of this year and will close 2008 at 16,200, ''with liquidity improving, oil hitting record highs, a base-metals rally and good prospects for further rate cuts south of the border.''
Like the Conference Board, Rubin expects that mortgage troubles will dampen U.S. growth but not produce a full-blown recession, while resource-hungry Asia ''will keep positive pressure on resource demand and prices.''
CIBC World Markets expects the price of oil to average US$90 a barrel over the coming year, along with a rebound in natural gas prices and gold hitting US$800 an ounce by the end of 2008.
The TD Bank (TSX:TD) report predicts the Canadian dollar will remain near parity with the American dollar for the next six months, and this, along with the U.S. slowdown, will hamper Canadian manufacturers and tourism operators.
But it says that ''Canada's economic foundation is sound'' and the real estate market will remain solid.
''It's easy to be pessimistic on the U.S. economy at the moment, given that the weakness in the housing market is far from over and lenders will likely cut back on the availability of credit in the near term,'' commented TD economist Craig Alexander.
However, he says U.S. businesses are in good financial shape, exports are growing and unemployment is likely to remain low.
''Americans may scale back their spending on big-ticket items like autos and luxury items,'' Alexander said, ''but so long as people have jobs and real earnings continue to grow, the economic expansion will continue.''
TD predicts the Canadian dollar will stay close to parity with the U.S. currency for the next six months, then trend down towards 95 cents US by the end of 2008.
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