A fizzling of the U.S. economy as the benefits of fiscal and monetary stimulus fade in the second half of 2010 will lead to slower growth in Canada, according to CIBC World Markets' 2010 forecast.
U.S. economic growth has largely come from federal government stimulus measures throughout the year as the private sector scaled back and reduced inventory to lows not seen in more than 20 years.
The report suggested, however, that as the government moves to curtail its spending, the private sector will not be spending as much over the next few years.
The biggest growth in private sector spending will occur in the first half of 2010 as companies rebuild inventory levels, but that will likely ease starting in the third quarter.
The report also forecasts U.S. unemployment to remain above 10% for the year and only improve marginally in 2011.
This will not bode well for Canada's economic growth in the second half of the year once inventory-building slows. Employment will rise, bolstered by a surge in construction jobs and the strengthening of the Canadian housing market.
The report said housing prices may have already overshot historical trends. Faced with increased supply this spring, and an expected increase in mortgage rates, real estate values could level off and even decline, which could lead to more subdued job growth in the third and fourth quarters of 2010.
A stagnating housing market may ultimately dampen consumer spending, the report said.
According to estimates from the Bank of Canada, Canadians spend annually about $0.057 out of every dollar increase in the value of their homes, leading to billions in additional consumer spending. If housing prices level off, that additional spending could be lost.