Feb 2011 7

Canada & U.S. – Economic Growth

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Photo by Sam Photo by Sam

When it comes to predictions about the future of the suspiciously strong Canadian housing market versus the still deflating U.S. housing market, all speculations regarding mortgage interest rates, household debt, unsold homes inventory and prices end with a rather obvious statement. The economies of both countries are crucial to the stabilization of the markets, not vice versa.

According to the Bank of Canada, the global economic recovery has been continuing with a faster rate than anticipated lately, thanks to improved private domestic demand in the U.S. and growth in Europe fuelled by Germany. The Bank anticipates a 2.4 per cent growth of Canada’s GDP in 2011 followed by a slight acceleration in 2012 to a 2.8 per cent rise in economic activity. Inflation-wise, no major changes are expected, the increase in overall prices is expected to reach 2 per cent by 2012. The Bank didn’t change its overnight interest rate, which is still at 1 per cent, so there are no signals for an increase in mortgage interest rates so far.

The U.S. economy has been doing quite well lately. In the last three months of 2010, they reached a 3.2 per cent economic growth rate, which is a slight improvement from the quarter before. Consumer spending in 2010 took off at a 4.4 per cent increase and contributed heavily to the overall 2.9 per cent increase in 2010 economic activity of the U.S. The U.S. Labor Department reported a 2 per cent rise in wages and benefits, which is rather disappointing given that it’s the second lowest number since recording began 28 years ago. Morgan Stanley predicts that the U.S. economy will grow at a faster pace the next quarter, gaining 4.5 per cent, due to high inventories and rising sales.

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