Weaker export growth and the need to bring inventories under control will hurt economic growth in 2003, according to The Conference Board of Canada’s Canadian Outlook, Summer 2003.

The Canadian economy is expected to grow by only 1.9% this year, a reduction from the Conference Board’s spring forecast of 2.7% growth. A steep rise in the dollar, powered by the spread between Canadian and U.S. short-term interest rates, is a major factor in the downward revision to growth.

“The economy is in for a very rough ride over the summer months,” said Paul Darby, vice president and chief economist. “Exports are now expected to decline this year, primarily because of the surge in the Canadian dollar. We expect that the slowdown will prompt the Bank of Canada to cut interest rates by 50 basis points later this year, undoing both of the increases that occurred in the spring.”

The economy is expected to bounce back later in 2003, and it will grow by 3.2% in 2004. Lower interest rates will reduce the gap between Canadian and U.S. rates. As a result, the dollar will lose value against the greenback and export growth will return, especially as the U.S. economy rebounds. Continued stagnation of the U.S. economy, however, is the key risk to this outlook.

http://www.newswire.ca/releases/July2003/03/c9391.html