(June 29 – 10:30 ET) – Canada’s growth and earnings prospects are looking up thanks to faster worldwide growth, according to a Scotia Economics report.

According to the report, the NAFTA partners — Canada, the U.S. and Mexico — will record a combined growth in output of nearly 5% this year. While Canada should trail the roaring U.S. economy this year, it should match it in 2001.

“Much improved performances are also evident internationally,” said Warren Jestin, Scotiabank’s chief economist. “Competitive readjustments have bolstered production and shipments in Europe, Latin America and most of the Asia/Pacific region, contributing to an important reduction in joblessness and an upturn in consumer spending.”

Consumer spending is leading Canada’s expansion, underpinned by employment gains and falling taxes, as U.S. demand tails off. “As in the United States, the need to upgrade to survive and thrive will drive Canadian business spending,” said Jestin. “Tightening commercial vacancy rates, the revival of government infrastructure investment and the dramatic rebound in resource profitability will add further strength.”

Spending increases and tax cuts introduced by Ottawa and the provinces in recent years also will help underpin growth through 2001. “At the same time, rising wage costs and an underperforming currency will probably keep Canadian monetary policy in virtual lockstep with the U.S.,” said Jestin. “This suggests that Canadian rates will follow the American uptrend through the summer, then level out and eventually begin to move lower in 2001 after growth and inflation have subsided. And as the re-balancing of global growth broadens the focus of investors, the Canadian dollar should move back into the 70¢-72¢ range next year.”

Jestin calls for the Fed to raise rates another 50 basis points this summer to fight potential inflation. This should help push investors into foreign markets, allowing rates and inflation to subside by spring 2001.

By region, Scotia expects the Atlantic provinces to benefit from increased offshore energy development and tourism; in Quebec and Ontario the high-tech sectors and large public infrastructure projects are boosting construction; stronger commodity markets will boost the West, as will diversification into the high tech field.

To view an audio and video webcast of Jestin presenting the Global Outlook visit: http://www.scotiabank.ca/eccomm.htm
-IE Staff