Canada's Future Is Bright

26 Jun 2010

Canada is having a brighter future ahead than most of the developed countries. Emerging from theglobal recession, the first quarter of 2010 showed Canada�s strongest economic growth in 10 years. Also, it is on the verge of surpassing pre-recession levels, and the central bank is set to raise interest rates. However, there are questions arising about the economic momentum continuation in view of cooler housing market, fiscal and financial troubles in Europe and ongoing high U.S unemployment.

The country posted first-quarter annualized growth of 6.1%, the best three-month performance since late 1999. Near-zero interest rates interested consumers to purchase homes and durable goods like cars, electronic goods etc leading to a 4.4% annualized gain in the quarter. Thereby, posted a solid 11.2% annualized gain in the quarter by the production sector, lead by manufacturing.

"The numbers are telling you that we have a sustained rebound in demand," said Sheryl King, chief Canadian economist at Merrill Lynch Canada.

Canada's first-quarter gain is the strongest yet among Group of Seven countries during the recovery stage of the economic cycle.

But the strong economy is likely to push the Bank of Canada to begin raising rates. Higher rates will increase the cost for households to service their historical high levels of debt, and that will be among a series of factors that gradually pushes down the pace of Canadian growth.

There is income growth, 1.1% annualized last quarter, but that lags the rate at which they are spending cash, Mr. Shenfeld said. "As interest rates rise, it is going to put a bigger squeeze on household finances.