Canada's outlook grows gloomier: think-tank

Canada's economy will shrink by 1.7 per cent in 2009, half a point more than initially forecast, according to the Conference Board of Canada.

The Ottawa-based business think-tank, which is set to publish its revised economic outlook on Tuesday, now forecasts that Canada's economy will contract faster because of the slowing American economy.

"A sharp and sustained decline in U.S. household spending is behind the first contraction in global trade in over 60 years. The situation has brought even the strongest economies to their knees," said Pedro Antunes, the board's director of national and provincial forecasts, in a presentation.

Antunes, who was in Calgary at a conference, told reporters that Canada's economy shrank by seven per cent in the first quarter of 2009.

The new report, worse than the board's previous expectation of a 1.2 per cent GDP drop, put the Canadian organization in line with some prognosticators, such as the International Monetary Fund, which holds the same estimate for the country's growth.

Others, however, have an even bleaker Canadian outlook.

The Paris-based Organization for Economic Co-operation and Development, for example, believes that Canada's economy will shrink by three per cent.

"This year, government spending will be the only remaining pillar of Canada's once buoyant domestic economy, but this comes with a hefty price tag — deep and enduring deficits," Antunes said in his conference presentation.

Worse still, any recovery will be glacial.

The United States economy is expected to shrink by 2.5 per cent this year, expanding by 2.1 per cent in 2010, the board said. Canada will also expand next year, by 2.5 per cent.

In addition, unemployment will peak at 9.5 per cent in the middle of 2010, up from six per cent in March 2008.