Restraint by Governments, Households, and Businesses Pull in Reins on Canada's Economic Growth in 2012

OTTAWA, Jan. 18, 2012 /CNW/ - Record levels of household debt, a pull-back in public sector spending and slower growth in business investment will contribute to a weaker outlook for Canada's economy in 2012, according to The Conference Board of Canada's Canadian Outlook - Winter 2012.

Real gross domestic product growth is forecast to slow to 2.1 per cent in 2012, down from an estimated 2.3 per cent last year.

"Restraint by governments, households, and businesses will stifle domestic demand and curb economic growth this year," said Pedro Antunes, Director, National and Provincial Forecast. "Adding further uncertainty are the sovereign debt problems in Europe and the tepid U.S. economy, which continues to perform far below its potential."

The economic outlook assumes the eurozone will manage to avoid falling even deeper into crisis, but the risks to the outlook remain unusually high. The effort by eurozone leaders to build a stronger fiscal foundation has helped stabilize financial markets for now, but the roller-coaster ride that prevailed through most of last year is sure to continue in 2012.

Closer to home, federal, provincial, and municipal governments are expected to pull back hard on spending in 2012. Even though government program spending will rise modestly this year, the decline in infrastructure investment will more than offset those gains. Total spending by all levels of government is forecast to contract 0.6 per cent in 2012, taking roughly $2 billion out of the economy.

The federal government has delayed its target for a balanced budget by a year, to 2015-16. The Conference Board expects that federal books could be balanced on time, if not earlier than expected. Some provinces, however, are in a much tougher fiscal situation. They face the challenge of balancing their books before rising debt levels limit their ability to fund social programs and public health care.

Consumer spending is expected to increase faster than income growth in 2012. Modest job creation and wage gains will lead to income growth of 3.5 per cent in 2012. Households are expected to keep up their level of spending by going deeper into debt.

The turmoil in Europe and weaker growth in corporate profits are expected to shake business confidence. Growth in private investment is forecast to slow in 2012 to about half the pace of the previous two years.


For further information:

Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext.  448

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