NBFG Monthly Economic Monitor - December 2010
Highlights
- Asian expansion continues and the region’s trade flows are buoyant. However, domestic conditions are beginning to press a little too hard on prices and Asia’s central banks are now behind the curve on inflation. Further currency appreciation is required to avoid the need for an overly abrupt normalization of interest rates, which could hurt growth.
- The U.S. slow-growth trap is confirmed by third-quarter data. With inventory rebuilding over, moderate growth will continue with support from domestic demand, which grew at roughly 3% in Q3. This will not be enough to stop the Federal Reserve from carrying out its action plan, because employment growth, though improving, is insufficient given the current low inflation.
- The Canadian picture is less impressive than before and reflects a slowing of growth at the outset of the expansion phase of the cycle. Vigorous growth in the wage bill and the expected continuation of monetary stimulus in the months ahead justify a cautiously optimistic view of the economy. Construction is retreating and the anticipated rise of the loonie is likely to affect the trade sector. We expect Canadian growth in the neighbourhood of 2% annualized in both third and fourth quarters. We anticipate a similar pace, slower than that of the U.S. economy, in 2011.
