Monday, September 29th14.4°C

Strong U.S. recovery best medicine for ailing Canadian economy, analysts

OTTAWA - A strong economic performance by the United States for the year's second quarter is fuelling hopes Canada's economy may too be poised to shift into a higher gear.

Analysts say the 4.0 per cent bounce-back in the U.S. during the quarter — which included an 11.7 per cent spike in imports— was much better than expected and the type of news the Bank of Canada has been anticipating.

Bank of Montreal senior economist Sal Guatieri said the impact on the Canadian economy may be noticeable as early as Thursday when Statistics Canada reports on the country's gross domestic product performance for May.

The economist consensus is for a pick-up of 0.3 per cent during April, which would be considered moderately encouraging, but Guatieri said the odds have risen for an even bigger month and a stronger quarter overall when the June numbers arrive.

"It's possible, in light of the stronger U.S. report, that we may see an upside surprise," he said, noting that the agency had previously reported robust manufacturing and wholesale sales for the month. "Canada will definitely benefit from a stronger U.S. economy."

In another positive for exporters, the loonie slipped about one-third of a cent to dip below 92 cents US, which should make Canadian exports more competitive in foreign markets.

While the stellar numbers south of the border — including an improvement in the labour picture — could result in the U.S. winning bragging rights from its northern neighbour, policy-makers in Canada are unlikely to complain.

"It's fundamental to our growth story," said James Marple, an economist with TD Bank. "So far, the Canadian economy has outperformed the U.S. but that's been largely due to domestic demand fuelled by household debt and a housing market rising above fundamentals.

"But to maintain even the growth rate we've had we're going to need to transition to exports as a driver of the economy," he stressed.

The Canadian economy has been stuck in neutral for the better part of three years, with growth rates at or slightly below two per cent. Meanwhile, after a strong job creation record following the 2008-09 recession, the past 12 months has seen employment growth level off to under one per cent.

Bank governor Stephen Poloz has been hoping for a rebound in external conditions, particularly in the U.S., to begin what is referred to as a "virtuous cycle" in the Canadian economy where demand for exports boosts business confidence which, in turn, triggers expanded business investment.

Earlier in the month, Poloz complained about the "serial disappointment" of the global economy as a key restraint on Canadian growth.

The U.S. rebound, following a first quarter when the economy actually shrank by 2.1 per cent — mostly due to severe winter weather — suggests the American economy is set for a strong second half with GDP advancing at about three per cent or higher.

Poloz has said that due to the loss of capacity caused by the 2008-09 recession, Canada won't likely benefit to the extent it might have in the past. But he said any improvement in the U.S. will increase demand for such things as Canadian autos and parts, forest products and other manufactured goods, as well as oil.

There were elements of caution in the second quarter report, including a strong build-up in inventory which could dampen expansion down the road.

Marple noted another worry: the recent downturn in the U.S. housing market which is an important indicator for Canadian exporters since much of what they ship south — including appliances, furniture and wood products — is dependent on the sector.

But most analysts see signs that the current pace of the U.S. expansion, after evening out the bumps of the first and second quarter, is sustainable at least for the short term, which would allow the Federal Reserve to start raising interest rates in 2015.

That gives room for the Bank of Canada, in tandem with the Fed or closely before or after, to also begin the process of moving rates to more normal levels from the historic lows of the past five years.

The Canadian Press

Read more Business News


Recent Trending

Today's Market
S&P TSX14976.92-49.85
S&P CDNX912.76-6.66
S&P 5001977.80-5.05
CDN Dollar0.8969+0.0011
Natural Gas4.138-0.016

Okanagan Companies
Pacific Safety0.135-0.02
QHR Technologies Inc1.23+0.01
Anavex Life Sciences0.185-0.01
Metalex Ventures0.0550.00
Russel Metals34.49-0.54
Copper Mountain Mining2.52+0.11
Colorado Resources0.150.00
ReliaBrand Inc0.020.00
Sunrise Resources Ltd0.065+0.045
Mission Ready Services0.34-0.02



20746551271 Steele Road
4 bedrooms 4 baths
more details
Click here to feature your property
Please wait... loading

Power-save your way to a down payment

Part 2 of 2 to read Part 1, click here. 5. Dial down your vacations. New York is out. Maybe Buffalo. For West coast, maybe Seattle instead of Hawaii. Use sites like Airbnb ( to find ch...

A wildly successful manufacturer

Niche food producer “Sweets from the Earth” thrives using innovation, uniqueness and an unwavering focus on quality. A neighbour’s stew turned Ilana Kadonoff off meat at the age of s...

Finding the smart money

Recently I had the privilege of working alongside André Voskuil, a local guru in the world of Alternative Financing. André has quite the reputation in the world of direct investments as ...


Member of BC Press Council