OECD lowers estimate on Canadian growth

The outlook for the Canadian economy has been downgraded by the Organisation for Economic Co-operation and Development, which projects growth of just 1.2% for 2008. That’s down from an initial estimate of 1.8%.

The OECD’s interim assessment places Canada just under the 1.4% average for G7 nations, and places the country on a par with Japan. It could be worse: Italy is expected to see growth of just 0.1%.

The estimate calls for Canada to pick up steam from its recent sluggishness, with growth climbing from the annualized rate of 0.3% posted in Q2 to 0.8% in Q3. By the fourth quarter, annualized growth should hit 2.0%.

That places Canada back at the top of the table for the final quarter, with the closest rival, Japan, seen posting annualized Q4 growth of 1.4%.

More important to most Canadians, however, is the outlook for the U.S. economy. After a stellar Q2, when annualized growth hit 3.3%, American growth is expected to soften, to 0.9% in Q3 and 0.7% in Q4. The second quarter blip may be explained away by the federal government’s stimulus package.

Thanks to those rebate cheques, the U.S. economy is expected to post full-year growth at the top of the list, at 1.8%.

While the report suggests that the world’s largest banks may now have written off the worst of their losses associated with sub-prime mortgages, the new threat to the financial system stems from a slowing “real economy.”

Meanwhile, the price of oil has come well off of its highs, but tight supply will continue to plague consumers.

On the upside, volatility in food prices seems to have eased. Of course, this is harvest season in the world’s major export countries, which will have flooded the market with cereal commodities. This relief, therefore, is likely cyclical, and food prices may well spike again in 2009 as stockpiles are consumed.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(09/02/08)