US slump to drag down Canada, says top bank

July 4th, 2008 - 12:38 pm ICT by IANS  

Toronto, July 4 (IANS) The economic downturn in the US will also drag down Canada’s economic growth rate to just 1.4 percent for 2008, says a report. However, the growth rate will pick up to reach 2.5 percent in 2009, says the Royal Bank of Canada (RBC) in its latest economic forecast.

“Canada’s economy will continue to be hampered by flagging US demand for exports, but domestic demand will more than offset the drag this year,” Craig Wright, senior vice president and chief economist at the RBC, said in a statement.

He said: “The surprise economic contraction will be short-lived as growth prospects for the remainder of the year should brighten, with financial market pressures starting to ease, the US economy getting a boost from the issuance of tax rebate cheques, and commodity prices remaining historically high.”

Canada’s biggest bank said strong terms of trade, boosted by rising export prices, would spur the country’s economic growth.

According to the report, commodities continue to experience strong demand from emerging markets such as China.

With high commodity prices giving rise to worries about inflationary trends, the RBC said these would be offset by the modest growth rate and ease in labour markets.

The report expected the inflation rate to remain below two percent.

It also saw a slowdown in the housing market because of “deteriorating affordability”. However, Canadians would not witness the dismal levels seen in the US, the report said.

The US is Canada’s largest trading partner, accounting for more than 80 percent of its overall world trade.

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