01/18/2012 11:59 EST

Canada Economy 2012: Conference Board Says Cautious Businesses, Government Cuts To Hurt Economy


OTTAWA - Spending restraint by governments and businesses will contribute to an expected slowing of gross domestic product growth this year, the Conference Board of Canada said Wednesday.

In its outlook for winter 2012, the Ottawa-based think-tank said it expects GDP to decline to 2.1 per cent from 2.3 per cent last year.

Conference Board spokesman Pedro Antunes said weaker spending is expected "stifle domestic demand and curb economic growth this year."

"Adding to uncertainty are the sovereign debt problems in Europe and the tepid U.S. economy, which continues to perform far below its potential," said Antunes, the Conference Board's director, national and provincial forecast.

The board's economic outlook assumes the eurozone will manage to avoid falling even deeper into crisis, but says 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," it said.

And that, its says, it likely to shake business confidence, with the growth in private investment forecast to slow in 2012 to about half the pace of the previous two years.

In Canada, 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.

"Even though government program spending will rise modestly this year, the decline in infrastructure investment will more than offset those gains," the Conference Board said.

The federal government has delayed its target for a balanced budget by a year, to 2015-16, but the Conference Board said it believes Ottawa's books could be balanced on time, if not earlier than expected.

"Some provinces, however, are in a much tougher fiscal situation," it said.

"They face the challenge of balancing their books before rising debt levels limit their ability to fund social programs and public health care."

Meanwhile, consumer spending is expected to increase faster than income growth in 2012 as modest job creation and wage gains lead to income growth of 3.5 per cent in 2012.

However, it said households are expected to keep up their level of spending only by going deeper into debt, which is already at record levels.


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