December 20, 2006 09:37 ET

National Bank's Economic and Financial Outlook: Winter 2007

A risk of rising headwinds in 2007 after a long period of economic expansion

MONTREAL, QUEBEC--(CCNMatthews - Dec. 20, 2006) - (TSX:NA) - National Bank's team of economists unveiled their economic and financial forecasts for 2007 today.

Thanks to rapid industrialization in emerging Asian countries such as China and India, which have a combined population of 2.3 billion, the world economy should continue to expand in 2007, albeit at a slower pace. In the United States, the economic slowdown already underway will spread in 2007 as American households become more focused on savings in the wake of the real estate sector's nosedive. Although its fundamentals are among the most solid of all G7 nations, Canada will not be protected from the headwinds blowing south of the border in 2007, with a relatively modest 2.2% growth in GDP predicted.

Regional disparities within Canada should increase in 2007, according to Clement Gignac, Chief Economist of National Bank and Senior Vice-President and Strategist at National Bank Financial. With their wealth of natural resources, the western provinces will continue to lead the pack. In Ontario and Quebec, economic growth will once again be below 2% in the coming year.

There is good news on the horizon for Canadian households in 2007, with projected cuts in the Bank of Canada's key rate likely to total close to 100 basis points. For businesses, this loosening of monetary policy should produce a drop in the loonie, which is expected to take a break from its climb of recent years and settle between 85 and 88 cents before rising to trade on par with the greenback by the end of the decade.

On the markets, 2006 was a bumper year for Canadian investors with most financial asset classes registering their fourth consecutive year of positive returns. Despite the climate of optimism currently reigning on the stock market, Clement Gignac reminds investors to continue exercising caution in 2007.

As always, diversification and discipline are crucial to medium-term success and sound portfolio management in the opinion of our experts.

North American Economic Forcast
2006 2007 2008
United States (%)
Real GDP - yearly average 3.3 1.9 2.0
- Q4/Q4 3.1 1.8 2.1
Unemployment rate 4.6 5.1 5.6
Inflation rate 3.1 1.6 1.7
Target Fedfunds rate (end of year) 5.25 3.50 3.25
10-year Treasuries (end of year) 4.54 4.00 4.00
Canada (% unless otherwise indicated)
Real GDP - yearly average 2.8 2.2 2.5
- Q4/Q4 2.4 2.5 2.4
Unemployment rate 6.3 6.4 6.6
Inflation rate 2.0 1.5 1.4
Housing starts (000) 228 208 192
Target overnight rate (end of year) 4.25 3.50 3.25
10-year Canada bonds (end of year) 4.00 3.90 3.80
Canadian dollar (in U.S. cents, annual average) 88.0 86.4 90.9
Real provincial GDP (%)
Quebec 1.8 1.8 2.1
Ontario 1.6 1.6 2.0
Newfoundland and Labrador 3.0 5.5 0.5
Prince Edward Island 1.9 1.5 2.0
Nova Scotia 2.5 2.1 1.9
New Brunswick 2.4 2.5 2.2
Manitoba 3.6 2.9 2.9
Saskatchewan 2.5 2.9 2.7
Alberta 7.0 4.0 4.0
British Columbia 4.0 3.3 3.0

The Economic and Financial Outlook - Winter 2007 webcast is available via National Bank's website at:

About National Bank of Canada

National Bank of Canada is an integrated group which provides comprehensive financial services to consumers, small and medium-sized enterprises and large corporations in its core market, while offering specialized services to its clients elsewhere in the world. The National Bank offers a full array of banking services, including retail, corporate and investment banking. It is an active player on international capital markets and, through its subsidiaries, is involved in securities brokerage, insurance and wealth management as well as mutual fund and retirement plan management. National Bank has more than $116 billion in assets and, together with its subsidiaries, employs 16,972 people. The Bank's securities are listed on the Toronto Stock Exchange (NA:TSX). For more information, visit the Bank's website at

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