Money and Metals

The Gazette in Canada worries about the financial health down south. "Times are good in Canada, really good. Now watch out. This is the essence of a sobering new warning from chief economist Clement Gignac at the National Bank of Canada. Gignac paints a persuasive picture that 2006 could well be the year in which our luck runs out as years of accumulated financial excesses in the U.S. economy start to come unwound, beginning with the deflation of a housing bubble that may be stretched to its limit."

"Why worry? Because we happy Canadians are perched on top of what many economists, including Gignac, regard as a financial volcano: the increasingly stressed U.S. economy. If it blows, we can expect to be shaken badly. Gignac believes that 2006 is the year when the housing bubble will start to deflate. If this is abrupt, it could trigger a recession. More likely, he thinks, it will happen gradually and there will merely be a sharp economic slowdown."

"How sharp? U.S. economic growth from the end of this year through the end of 2006 will likely decelerate to 2.4 per cent from the past year's robust 3.7 per cent. The principal reason is that consumer spending growth will grind nearly to a halt, falling to the slowest rate in 15 years."

"Canada's overall growth will slow, too, even though the energy and commodity-driven economies of the West and the Maritimes should hold up well. The soft spot will be Ontario, which produces a larger percentage of North America's autos than any other locale, even Michigan. When consumers feel impoverished, the last thing they want to buy is a new car."

"Quebec will also be hurt, since it depends on exports to the U.S. and to Ontario. It will also feel it if a U.S. slowdown squeezes demand in other parts of the world, as it likely would."