Companies exploring global business destinations will discover the Canadian economy is doing fairly well in the globally recovery, supported by stimulus funds issued by the federal and provincial governments. The Canadian economy also features strong consumer spending and strong housing markets, both in housing starts and existing home sales, bolstered by low interest rates.

However, because the United States is Canada's largest export market, and which is chugging out a recovery, Canada's private sector is taking a bit longer to bounce back and invest. This combined with pending expiration dates for the federal and provincial stimulus monies, means government cut backs on spending for goods and services.

The Conference Board of Canada's Marie-Christine Bernard highlights the opportunities and challenges of the Canadian economy, with a particular focus on the Prairie Provinces, Manitoba and Saskatchewan.

Global Corporate Xpansion: Bring us up to speed on where the Canadian economy stands [April 2010].

Marie-Christine Bernard: The Canadian economy has been doing well since the last few months of 2009. In the fourth quarter of 2009, where there is economic data, we know that the economy grew by nearly 5 percent at an annual rate. It has been a very quick recovery for the Canadian economy.

GCX: What is behind this quick recovery?

Bernard: It is supported by fiscal stimulus funds. In the last year, our governments have put forward infrastructure programs to assist in battling the recession. Some of the recovery is due to the government sector; however, consumers have also been active.

There has been a steady increase in retail sales and also in housing demand, both for new housing and for the existing market. Resale activity has been very strong. This is supported by the fact that mortgage rates and interest rates are low in Canada at the moment.

This strong recovery should last until the middle of 2010. We will see the pace of economic activity weaken from there into 2011 as the fiscal stimulus that was put forward is reigned in in 2011 because now the federal government and most provinces are facing considerable deficits, and need to look do this before things get out of hand.

GCX: Share the highlights of the report that was put together by the Conference Board of Canada to discuss the federal government's budget, which was released earlier this year.

Bernard: Right now the infrastructure program is in place. On the other hand, business investment was hurt severely by the recession. Profits and cash flows were down. So we think it will take another six months before the business sector is able to pick up. Consumer demand in the United States is still quite low and since 70 percent to 75 percent of Canada's exports go to the United States, it will take a while longer for the private sector to rebound and invest again.

That is why the fiscal plan was put in place, temporarily, until the economy picks up. It will be pulled back and so will the government's spending on goods and services.

GCX: In regard to this recovery, economists in America say this recovery is unlike anything experienced with previous recovery periods — that this is a whole new game. What might be different in Canada this time around? What can businesses expect?

Bernard: It is different in the states than in Canada. In the states, the consumer supports the economy a lot, and before the recession there was a lot of spending and credit. And the housing market was starting to weaken.

It wasn't the same in Canada. There wasn't a housing bubble and consumers did not overspend. We are not going to see the same situation in terms of how consumers react in the states versus Canada. In fact, consumers are still very active in Canada. They did hold back on spending in 2009 but it wasn't a decline like it was in the United States.

Typically coming out of a recession we see strong economic growth. But this is not the case. The recovery will probably be spread over two years to three years before we get back to a more normal level of activity.

GCX: Let's talk about the Prairie Provinces of Canada, Manitoba and Saskatchewan, and how each province's economy is faring.

Bernard: Manitoba suffered from the global recession due to the fact that the province does export a lot of its products to the United States. The manufacturing sector's decline led to a small decline in the real GDP in 2009. It did not suffer as much as other western provinces, and was the least affected by the global recession.

We do not forecast a very big rebound for Manitoba in 2010 and 2011, where growth will be moderate at just over 2 percent.

We will see a recovery in the manufacturing sector as the United States gets back on its feet. Also Manitoba has several mineral mines and has benefitted from the recovery of base metal prices that have been rising. Some mines will reopen and new mines will be developed.

What is holding back growth is the construction sector, which had been growing strongly since 2006. There was an expansion of a pipeline that crossed through the province that came to an end in 2009. This was a large investment project that will not be replaced by another large project so that will hold back construction in 2010, as well as overall economic growth in the province.

The outlook for Saskatchewan is quite different. It suffered considerable GDP decline in 2009, mainly because of the slowdown in the mining sector, in particular with the potash industry.

Saskatchewan exports most of its potash on global markets, and demand in 2009 virtually came to a halt. Several of the companies that operate the potash mines scaled back production significantly, which really hurt the province. There were also layoffs and less transportation fulfilling activity.

Toward the end of 2009 and in early 2010 we have seen demand come back as new contracts were signed. The industry is gradually coming back, though it won't fully recover in one year. However, it will be enough to push overall economic activity over 3 percent for 2010. And a similar number is expected in 2011.

GCX: What are the economic trends you are watching that would interest businesses?

Bernard: There has been mention that interest rates are low and that they will need to go up because if they stay at the low level it will create inflation down the road. People are watching to see when the Bank of Canada will increase interest rates. There is a June date that is being talked about. The question is whether the bank will increase the rates during a six-month period or during a one-year period. One thing to watch is monetary conditions over this next year and how they will influence the Canada dollar.

This is something for businesses that export what they produce to consider.

Interview conducted by Rachel Duran.

Marie-Christine Bernard is the associate director, provincial forecast, for the Conference Board of Canada. She can be reached by e-mailing bernard@conferenceboard.ca. The Conference Board aims to be recognized as Canada's most influential, independent source of insights for leaders. It builds leadership capacity for a better Canada by creating and sharing insights on economic trends, public policy and organizational performance. Visit the organization at www.conferenceboard.ca.