Canada’s economic prospects for 2005 will be a tale of two economies—weakness in the export-led economy, but a brighter scenario on the domestic side. Strong domestic fundamentals will help carry the Canadian economy through a bumpy period of global adjustment and weak export growth.
Document Highlights
Weakness in Canadian exports in 2005 will be offset by Canada’s strong domestic foundation.
Factors constraining Canada’s export performance and shrinking the trade surplus with the United States include:
- the rapid jump in the value of the Canadian dollar
- moderating growth in world demand
- commodity prices reaching or passing their peak
- weakness in specific industries, such as the key auto and parts sector
- the slowdown in North American integration
- China’s growing share of the U.S. market, which is squeezing Canadian export market share
But the domestic side of the economy looks bright, thanks to:
- a strong macroeconomic foundation, with federal fiscal surpluses, falling government debt and a monetary policy geared to low and stable inflation
- healthy domestic investment, lead by projected growth of 8.3 per cent in machinery and equipment investment
- solid employment growth and rising disposable income
- growing household assets and net worth, which are offsetting rising household debt
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