OTTAWA, Jan. 26 /CNW/ - The U.S. economy is picking up steam in 2011,
which is a long-awaited positive sign for the Canadian economy,
according to The Conference Board of Canada's U.S. Outlook-Winter 2011. But the risks to the American rebound beyond 2011 are unusually high,
and growth in the succeeding years could be jeopardized by massive
The U.S. Outlook-Winter 2011 projects real gross domestic product (GDP) growth of a solid 3.2 per
cent this year. In the private sector, the recovery is led by export
growth of more than eight per cent, double-digit gains in business
investment due to a rebound in corporate profits and
better-than-expected growth in consumer spending. Exports are
benefitting from a weak greenback and healthy growth in the world
economy, particularly in emerging markets.
The stronger GDP outlook can also be attributed to the agreement by the
U.S. Congress and the Obama Administration to extend Bush-era tax cuts
to all income groups for two more years. Lowering the payroll tax will
benefit U.S. labour markets over the short term, and increased
discretionary income should boost domestic demand modestly.
However, foregoing this revenue - an estimated $1 trillion in 2011 and
2012 combined - will keep the annual deficit at $1.3 trillion or more
over the next two years. Failure to address these fiscal deficits poses
a serious risk for the U.S. economy in the medium term.
"A financial crisis similar to the one that affected Greece and Ireland
cannot be ruled out if the U.S. government doesn't eventually implement
sound deficit reduction policies," said Kip Beckman, Principal Research
The European debt crisis itself is a serious risk to the recovery in the
United States. If the crisis extends to countries such as Spain and
Portugal, the effect on global equity markets could cause American
households and businesses to cut or slow spending growth.
The relatively optimistic outlook for household spending depends on a
healthy rebound in private sector job creation - something that has
failed to materialize due to tight credit conditions.
"The hope is that as 2011 unfolds, bank lending to the private sector
will pick up, enabling firms to hire more workers," said Beckman.
SOURCE CONFERENCE BOARD OF CANADA
For further information:
Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext. 448