CIBC: Canadian economy will roar 'like a lion,' then fizzle

Paul Vieira, Financial Post  Published: Thursday, January 14, 2010

The Canadian economy will roar back to strength in the first half of this year only to run out of fuel later in 2010 as foreign demand dwindles and the Canadian dollar appreciates on expected interest-rate hikes from the Bank of Canada, says an updated forecast from CIBC World Markets.

The economy will enter 2010 "like a lion," said Avery Shenfeld, the firm's chief economist. "But the fading benefits of [stimulus] measures, and the lingering hangovers from the past two-years' turmoil, will see us exit like a lamb. An average-looking year for GDP growth as a whole will mask some quite varied temperature readings on a quarterly basis."

Canadian growth will push ahead at a healthy pace until mid-year, boosted by temporary factors such as the restocking of inventories on both sides of the border and real estate activity. "But this euphoric performance will give way to a much more subdued second half," CIBC World Markets said.

The hot real estate market, which has helped lead the Canadian recovery, will cool off, the firm said, as listings climb and mortgage rates begin their ascent. As a result, hiring in the construction sector to build new real estate will level off.

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