Wednesday, March 22, 2006

Sizzle to Cool

This just in from CBC news online. A bit of a cooling off period at least here in the west could only be a good thing from the perspective of the market here in Edmonton.

TD PREDICTS U.S. ECONOMY WILL COOL IN 2006, CHILLING CANADA WebPosted Wed Mar 22 11:17:13 2006

---The U.S. economy is likely headed for a slowdown later in the year that will spill over into Canada, economists at TD Bank said Wednesday.

In a quarterly forecast, TD economists said U.S. economic growth is expected to slow to an average annual rate of 2.3 per cent in the last half of 2006 and the first half of 2007.

It is about one percentage point below the U.S. economy's long-term potential pace, they said.

The Canadian economy is expected to "marginally slip" below its longer- term trend rate of 2.8 per cent, the forecast said.

"Last summer, we noted that housing market strength and household indebtedness in the U.S. was simply unsustainable, and that it would give way to an economic slowdown in the second half of 2006," said Don Drummond, a senior vice president and chief economist at the bank.

"Evidence is mounting in support of this view."

Slowing sales of new and resale houses will eventually dampen construction and consumer spending in the United States, TD said its forecast.

"There is no two ways about it, the U.S. slowdown will be a drag on economic growth north of the 49th parallel," said Drummond. "But, since Canada has neither the same degree of housing imbalances, nor as much tightness in monetary settings, it should fare slightly better than its U.S. counterpart."

Any slowdown in the United States is expected to be mild and short-lived, the economists said.

But they warned there is a chance the U.S. economy could be in for a longer, sharper slowdown that could have a greater impact on Canada.

In the shorter term, the U.S. Federal Reserve and the Bank of Canada are both expected to go through one more round of tightening interest rates.

The hikes will boost rates to 4.75 per cent in the United States and four per cent in Canada, TD forecast.

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