The Canadian economy's rocket-like recovery from recession is burning out, falling back into a prolonged period of more modest growth and job creation, says a new forecast from the Conference Board.
After a fast start with growth rates of 4.9 per cent and 6.1 per cent annualized in the last three months of 2009 and first three of 2010, the economy is expected slow significantly in the second half of this year and next year.
The Ottawa-based think-tank says growth will slow to 3.6 per cent when the second quarter results are in, then to 3.3 per cent and finally to 2.9 per cent in the final three months of 2010.
"It's not a double-dip recession, it's growth not as strong as in the past," says economist Pedro Antunes, director of forecasting for the Conference Board.
For the year, the Conference Board expects growth to average 3.6 per cent in 2010 and 2.9 per cent in 2011.
The analysis is in line with other private-sector forecasters and the Bank of Canada, which have tabbed the just past second quarter as the end of hyper-growth. In April, the latest numbers available, the economy showed no growth from the previous month.
Job creation is also expected to slow, although the think-tank sees the unemployment rate continuing to fall from the current 7.9 per cent to 7.8 per cent by the end of 2010 and average 7.4 per cent in 2011.
Recovery from the recession has been a welcome respite for Canadian households and businesses after two years of flat and contracting conditions.
Employment during the first half of this year alone has risen by 309,000, more than earlier forecasts had projected for the whole of 2010.
New figures from the federal bankruptcy office also show Canadians' finances have improved significantly, with consumer bankruptcies in April dropping 21.1 per cent compared with the same month last year, while business failures declined 17.8 per cent.
Antunes says the growth spurt was the result of a strong domestic economy boosted by robust consumer spending, one-time government stimulus spending and restocking by companies that drew down inventories during the recession.
But consumers couldn't continue their spending spree for long, especially with interest rates rising, he said, noting that Canadians have been increasing spending beyond the rate of income growth.
"In terms of sustaining gross domestic product growth going forward, it's really on the trade side and (business) investment, and that depends on the rest of the world and that's where we think much of the risk still lies," Antunes said
The big danger, he said, is if another crisis occurs that saps confidence and undermines world trade and business investment, much like the fall of the Lehman Brothers investment bank did in the fall of 2008.
Prospects from the U.S. remain weak and the European debt crisis has added a volatile unknown into the forecasts, he said.
"We don't think it will happen, but these risks are real."
More evidence of how soft the U.S. economy remains came from a Commerce Department report Wednesday showing retail sales dropping a further 0.5 per cent in June, following a massive 1.1 per cent plunge in May.
In his forecast, Antunes points out that the projections depend on a "modest" recovery in U.S. household spending.
