The Canadian Chamber of Commerce forecasts that 2005 will be a year of tempered growth for the Canadian economy.

In its 2005 Economic Outlook released today, the Canadian Chamber says growth in real gross domestic product (GDP) is expected to average around 2.8%, a slight increase from the 2.7% growth rate anticipated for 2004, but much lower than the expected 3.5% growth rate in the U.S. for 2005.

“Economic growth will be fuelled largely by robust business investment in machinery and equipment, supported by moderate gains in consumer spending and healthy increases in government spending, but the boost to economic growth from exports that we saw last year will wind down,” said Nancy Hughes Anthony, president and CEO of the Canadian Chamber, in a release.

The Canadian Chamber expects that the appreciation of the Canadian dollar, softer commodity prices and competition from low-cost countries will continue to dampen real export growth through 2005. However, a high employment rate, rising personal incomes and a continued low interest rate environment should continue to support moderate gains in consumer spending in 2005.

It adds that growth in corporate profits is expected to be much more muted as energy and commodity prices retreat somewhat.

In terms of interest rates, the Canadian Chamber expects the Bank of Canada to leave rates unchanged in the first half the year. However, as economic growth picks up in the second half of 2005, and with the core rate of inflation expected to trend towards 2% by the end of 2005, Canada’s central bank is expected to deliver, in total, a 50 basis points increase in the second half of 2005, bringing the overnight rate to 3% by year-end 2005.

The Canadian Chamber is also anticipating that the Canadian dollar will generally trade in the US82¢ to US86¢ range in 2005.

There are risks to the Canadian Chamber’s outlook. Foreign investors could turn their back on the U.S. dollar, which could cause the Canadian dollar to rise more significantly and resulting in lower economic growth than projected.

Conversely, as interest rates rise at a faster pace in the U.S. than in Canada, the Canadian dollar could retreat and economic growth could accelerate above 3% resulting in interest rates heading higher than forecast.

(View the Economic Review and Outlook, at www.chamber.ca)


http://www.newswire.ca/en/releases/archive/January2005/04/c9644.html