Slowdown in growth expected in fiscal reports

That's what Canadians will need this coming week to find out just how well -- or how badly -- their economy performed through the summer quarter. The two major economic reports of the week will show how much Canada earned in its dealings with the rest of the world -- released on Thursday -- and how much the economy grew-- released on Friday.

"We're expecting to see economic growth slow to two per cent," said TD Securities economist Jacqui Douglas.

That would be down from 3.4 per cent in the spring quarter, well below the Bank of Canada's 2.5-per-cent forecast, and a reason why TD is "now calling for rate cuts . . . ."

And she warns the risk is growth will be even weaker.

"Unfortunately, international trade is going to take a big bite out of GDP," Douglas noted.

"However, domestic demand is expected to remain strong, with strength in consumption of services and residential construction keeping GDP growth afloat," she added.

The problem is that more of that strong domestic demand is being satisfied south of the border -- with help from a strong Canadian dollar -- and that's expected to have helped erode Canada's relatively fat surplus in its trade and investment dealings with the rest of the world.

"Exports continue to decline, while cross-border shopping surges ahead, likely leading to a marked decline in the third-quarter current account surplus and slower third-quarter GDP growth," said Karen Cordes, economist at Scotiabank which is projecting the surplus will be halved to $4 billion from $8 billion.

Meanwhile, the micro-economic news in the coming week is not expected to be much, if any, brighter.

The major banks -- the Bank of Montreal on Tuesday, the TD Bank on Thursday and the Royal Bank on Friday -- will begin reporting their fiscal fourth-quarter results, which will reveal the extent to which the meltdown of the multi-billion-dollar market for asset-backed commercial paper eroded their profits .

The quarter will include write-downs for their losses from holdings of the securities that have been tainted with holdings of subprime U.S. mortgages. Although only National Bank of Canada is expected to report an actual loss, the banks overall will almost certainly report a drop in profits, their first quarterly decline in five years.

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South of the border the reports are also expected to suggest further weakness in that giant economy, including further evidence that the housing market is slipping deeper into recession.

"Sales of existing homes have weakened in each of the last seven months, and are now at their lowest level since comparable record keeping began in 1999," Scotiabank analyst Meny Grauman said. "This fall's unseasonably warm weather may temper the decline in October, but we still expect purchases to fall by three per cent."

The Wednesday report on existing home sales will be followed by Thursday's report on new-home sales for October, which Grauman projected will, after a slight improvement in September, resume their slide.

The basic message the reports from both sides of the border is expected to be there is a need for interest-rate relief, which is likely starting next month.

(prepared by Eric Beauchesne/Vancouver Sun)