SAN FRANCISCO -- Canada's largest trading partner will likely be in recession until late 2009, but slowing global economies, particularly in China, also pose a threat to Canadian growth, Jay Brinkmann, the chief economist of the U.S. Mortgage Bankers Association said Tuesday.
At a crowded press briefing at the MBA's 2008 conference in San Francisco, Mr. Brinkmann said the U.S. economy would dip into a mimimum three quarters of recession starting in the fourth quarter of this year, but the chance the recession started in the third quarter was very high.
"A recession appears underway, as evidenced in rising unemployment, contracting manufacturing activity and declining inflation-adjusted consumption spending," he said. "It's probably going to be longer than any recession we've seen in the last two decades."
Furthermore, a full U.S. economic recovery could take years given the dwindling size of the country's manufacturing sector, the industry that has traditionally boosted American growth after periods of contraction. He said the previous recession aided in the mass movement of manfuacturing offshore to cheaper regions such as China.
Mr. Brinkmann said the consumer-led U.S. recession would contine to hurt Canadian building product exports, but Canada would receive some support from its energy sector. However, the global slowdown was also casting a dark cloud over Canada.
"I think Canadians will be hurt by a fallout in demand from China," he said.
With the U.S. economy accounting for about 76% of Canada's export revenue, the struggling American consumer and devastated housing market will also drag on Canadian growth.
Mr. Brinkmann said the recession would be particulalry painful for consumers with U.S. unemployment rising to about 7.8% by early 2010 from 6.1% and remaining elevated throughout much of 2010. House prices are expected to fall further, down about 7% this year and 4% in 2009 before ticking up modestly in 2010. Meanwhile, foreclosure rates will continue to post fresh record highs and single family housing starts should break below their 1981 record low early next year at about 525,000 units.
"We expect residential investment to decline further through the first half on 2009 due to the excess of supply of houses and weakened demand from the recession," he said.
