According to Scotiabank's Global Outlook released Monday, sharp monetary policy easing, a generous fiscal stimulus package and massive liquidity injections are not sufficient to ward off a deterioration in U.S. economic conditions as the subprime crisis continues to take its toll on the economy and government spending soars to unprecedented levels.
"Without another injection of fiscal and/or monetary stimulus, however, recent economic resilience will likely give way to a broad-based weakening in U.S. conditions by year-end," said Scotiabank chief economist Warren Jestin. "The temporary palliative to consumer spending provided by Washington's flood of tax rebate cheques will be followed by a relapse in sales once this fiscal stimulus recedes."
While exports and investment growth continue to bolster the economy in the face of weakening consumer spending, a slowing global economy is expected to eventually take its toll on the United States.
The report also states that the weakness in the U.S., coupled with a stronger Canadian dollar, will also have adverse effects on Canada's economy.
"The difficult ongoing adjustments in Canadian manufacturing must be kept in perspective. Since the start of the decade, domestic manufacturing employment has fallen by 11 per cent, only half the 22 per cent decline in the United States," said Jestin. "In the euro zone, manufacturing employment has dropped by close to 25 per cent since 1990."
However, contrary to the U.S., the Canadian housing market is not expected to suffer the same setbacks of the U.S. sector.
By Erik Kevin Franco and edited by Nancy Girgis