TORONTO, June 12 /CNW/ - CIBC (CM: TSX; NYSE) - Weakening conditions in
sectors like manufacturing are masking the true state of the Canadian economy,
notes a new report from CIBC World Markets.
    "Despite some softer pockets, the national economy is still standing
stronger than it looks," says Avery Shenfeld, managing director and senior
economist, in his latest Provincial Forecast.
    Mr. Shenfeld says a range of data, from rising incomes, export revenues
and employment, to the possibility of better-than-expected provincial
revenues, suggest that Canada's economy is more than just a story about uneven
and uncertain economic growth.
    "One can hardly call Q1 the first quarter of recession, with real
personal disposable incomes up 7.3 per cent annualized, and employment up
two per cent annualized from the prior quarter," says Mr. Shenfeld who expects
to see slight economic growth across the country in second quarter.
    He further notes that the talk about Ontario potentially becoming a
"have-not" province ignores that Ontario's after-tax incomes are still above
the national average and "other provinces that had earlier seen harder times
are coming out of their shell and benefiting from improvements in their
economic base," says Mr. Shenfeld. "This is a positive story of improved
income equality."
    While some may regard recent declines in real gross domestic production
as a sign of looming recession, nominal GDP, which includes gains in prices as
well as volumes, is the number to look at right now, says Mr. Shenfeld. He
notes "shrinking volumes of goods have been exported to others at rapidly
climbing prices, and the resulting revenues flow to incomes that let Canada
buy more from the rest of the world in exchange."
    The rising price of exported goods should also put provincial coffers in
better shape than expected, says Mr. Shenfeld. He's forecasting that budget
surpluses in western provinces will exceed estimates on the strength of the
higher resource prices. Alberta revenues will likely surge the most if recent
energy price gains hold up says Mr. Shenfeld, adding that similar gains are in
store for its neighbours. "As a result, we expect that aggregate provincial
deficits will still be lower than forecast, even with disappointments in real
growth in the eastern half of the county."
    However, despite the signs of economic strength across the country, the
fate of provincial economies will continue to be directed by how closely
linked they are to the booming global materials markets and the U.S. economy.
    In provinces "where oil, gas, potash and metallurgical coal and other
commodities in high global demand are the core of the economy, growth is
constrained only by tight labour markets," says Mr. Shenfeld. "Where core
products are autos and parts, lumber, tourism and other goods and services
aimed at U.S. buyers, Canada is, like its American cousin, verging on or in
recession this year."

    The complete CIBC World Markets report is available at:
    http://research.cibcwm.com/economic_public/download/pfjun08.pdf

    CIBC World Markets is the wholesale and corporate banking arm of CIBC,
providing a range of integrated credit and capital markets products,
investment banking, and merchant banking to clients in key financial markets
in North America and around the world. We provide innovative capital solutions
and advisory expertise across a wide range of industries as well as top-ranked
research for our corporate, government and institutional clients.