EDMONTON – The Canadian economy will continue to grow at a slow but steady pace, says the chief economist with BMO Financial Group.
A low Canadian dollar to maintain exports and low interest rates to boost the domestic economy will help keep the Canadian economy stable, Tim O’Neill told farmers at the FarmTech 2003 conference.
Canada has outperformed the United States in growth in the past four years and will continue again this year, he said. Canadian growth has been 3.75 percent compared to 3.25 in the U.S.
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“Canada’s growth this year should be higher than last year,” he added.
But there are no signs pointing to a rapid or robust recovery in many countries.
The Japanese economy is in lousy shape and O’Neill believed it will be weak for at least another decade. Economists forecast only a one percent growth in Japan.
The rest of Asia looks better, especially when the U.S. economy recovers.
“Asia, excluding Japan, will likely be in good shape.”
“A robust world economy will make a robust demand for goods and services and agriculture products,” O’Neill said.
The American economy has been sluggish and will continue to be slow until there is major investment in capital spending such as manufacturing plants.
Consumer spending is also important for sustained growth in the U.S., but it too depends on capital spending.
“Household sector really kept U.S. economy growing. It accelerated the process of recovery,” he said, but emphasized capital spending was the missing ingredient.
“The key to recovery is acceleration of capital spending in plants, buildings. To see a full blown recovery in the U.S. this year, overall business fixed investment is going to have to accelerate.”
The U.S. manufacturing sector has cut jobs for 29 straight months, a reduction not seen since the Depression. Some manufacturers are reluctant to invest in capital spending projects until there is some stability in the Middle East.
“Companies are being influenced about the uncertainty in the Middle East. For as long as Iraq is in the news, there will be uncertainty reflected in the capital markets.”
Because Canada’s economy is so closely tied to the U.S., what happens in that country will affect Canada, O’Neill said.
“One-third of Canadian economy depends directly on what happens south of the border.”
