Hi All,

Here's is some more evidence that we are not looking into the abyss. Changes that were made to our economy over the last 20 years (Free Trade, Privatisation, the ending of Federal Gov't deficits, and changes to our tax structure) are paying off. As is mentioned near the end of the article, the BoC of is not forced by high inflation to raise rates and thus ending the party.

For the Vancouver market I see a moderating stabilisation of the market and then a gentle rise in the Spring.

Looking forward to you thoughts!

HEATHER SCOFFIELD

Globe and Mail Update

Canada's economy is in a rut, but economists say it won't take much to lift it out.

Recent U.S. data and some signs of strength in Canada suggest that the continent may be ready to exit the doldrums by the middle of next year From today's lethargic 2-per-cent annual pace, the Canadian economy is widely expected to kick into a higher gear within about six months, edging up to almost 3 per cent.

And if that's the case, the current downturn will be one more proof that the economy is generally on an even keel, with the ups and downs much less pronounced and much less painful than in previous decades.

“It's certainly no disaster,” said Avery Shenfeld, a senior economist with CIBC World Markets Inc.

The reluctant recognition by Bank of Canada Governor David Dodge last week that Canada was indeed enduring a slowdown jolted observers and sent the Canadian dollar sinking. But things probably won't get much worse than they are now, economists say.

Canada has just come through two quarters of sluggish growth and this year's fourth quarter and the first half of are expected to be much the same.

But with a bit of help from American consumers, Canadian governments and central banks on both sides of the border, Canada's economy should pick up by next summer.

There are signs that help is on its way. Data for retail sales in the United States last week was surprisingly strong, rising 1.0 per cent in November — despite continuing troubles in the housing market.

For now, the U.S. economy has some strong signs that it is struggling: the decline of the housing sector, falling employment in construction, and withdrawals of mortgage equity, points out Michael Gregory, senior economist with BMO Nesbitt Burns.

But it also has some encouraging signs: energy prices are falling, equity markets are rising, interest rates are low, and tight labour markets mean wages are accelerating and jobs are secure. Business investment is strong, and consumers are showing signs of resilience.

For Mr. Gregory, the key signal that the tailwinds are beginning to win out over the headwinds was the fact that applications for new mortgages are rising.

“It has definitely turned,” he said. “It's definitely a sign that people are taking out mortgages to buy houses.”

The fate of the U.S. housing market is important for Canada's economy, partly because American consumers draw much of their spending power from their real estate wealth, and partly because Canada's exporters supply many of the materials used in building and furnishing new homes.

The softest spots in the Canadian economy have been exports and manufacturing — both which would benefit from a recovery in U.S. housing.

Still, few economists want to declare the housing rout over, and consumption could yet become weaker in the United States, said Don Drummond, chief economist for Toronto-Dominion Bank.

But that's where central banks come in, he adds. He expects the U.S. Federal Reserve will cut its benchmark interest rate by three-quarters of a percentage point starting next spring, helping to boost the U.S. economy.

In Canada, many economists believe the Bank of Canada will cut rates a little bit as well, once it sees that inflation is well under control.

The Canadian economy could also get a lift from a slow depreciation of the currency, back down to the 83-cent (U.S.) level, said David Wolf, economist and strategist with Merrill Lynch Canada Inc. And with elections pending in Quebec, Ontario and at the federal level, significant fiscal stimulus is probably on the horizon, he said.

Economists differ in their estimate of the timing of the turnaround for Canada and the United States, but they agree that the downturn, for Canada, has been shallow by historical standards.

The manufacturing sector has suffered deeply, with tens of thousands of jobs lost, and profits taking a hit. And exporters have struggled to deal with the rapid rise in the Canadian dollar.

But the damage has not spread too far, and Canadian households have been able to depend on low interest rates and a healthy job market.

Interest rates and inflation are the main difference between this downturn and downturns of the past that turned into recessions, said Mr. Drummond.

In the past, inflation was usually high when the economy lost steam, and the central bank had to raise rates to fight inflationary pressure, exacerbating the downturn, he said.

“Those other cycles went down a lot further because they were monetary-induced slowdowns,” he said. Now, with rates relatively low and inflation in check, “we don't need to slam the breaks on the economy.”

And while Canada's recovery depends to a great deal on what happens in the United States, the fact that the Bank of Canada has kept its key rate below U.S. rates is helping the economy maintain some strength now, and will help it recover more quickly than the United States, Mr. Shenfeld said.

“They [the Bank of Canada] protected the domestic side of the economy,” Mr. Shenfeld said. “They made a wise decision.”