In the first quarter of 2008, the US economy grew at an annualized rate of only 0.6%. There are more and more signs of weakness in the economy: consumer confidence is at a 26-year low, business sentiment is shrinking as capex plans have been pared down across the board, gasoline prices are hitting record highs on a weekly basis, deflation in residential real estate is getting worse, and there has been a widespread decline in credit driven spending. The signs are now clear that the US GDP growth could soon be slipping into a recession. US GDP in the second quarter of 2008 is forecasted to contract by an annualized rate of 2.3%.

Since last September the US Fed has cut interest rates six times, with the benchmark fed funds rate now standing at 2.00%. On the latest 25 basis point cut the Fed signalled that its rate cutting program, one of the most aggressive in decades, may be on hold, at least until the second half of 2008. In the meantime, the Fed may want to adopt a wait-and-see approach to gauge the impact of the current fiscal stimulus passed by Congress in the form of a tax rebate.

In Canada, economic momentum grew due to an increased demand for Canadian natural resources with the Canadian dollar reaching a high of US $1.10 in November 2007. Although Canada’s annual GDP growth for 2007 was a strong 5.9%, the third and fourth quarters were 0.5% and 1.3% respectively. The Bank of Canada has forecasted that Canada’s economy would suffer a slow first half of the year and start to recover in the second half.

In contrast, 2007 was a strong year for the BRIC economies (Brazil, Russia, India and China) and the outlook for 2008 looks equally positive. The BRIC countries remain a key driver of global economic growth. These leading emerging and rapidly growing economies represented a total of 2.7 billion people and a combined GDP of US $5.2 trillion in 2006. GDP growth in China is expected to hover around 10% in 2008 as its overall economic activity remains buoyant. Brazil’s GDP is expected to remain high as the country is driven by strong exports and solid economic growth. India’s GDP (of which agriculture is a major contributor) will remain strong in 2008, while Russia’s GDP growth will continue to accelerate above 8% with high oil prices driving the exports.

The US dollar index, a measure of the US dollar against a basket of other currencies in fixed ratios (EUR, JPY, GBP, CAD, SEK, CHF), has been on a steady decline since 2002.

The index touched an all time low of almost 70.7 in March of 2008 as it continues to slide. The stumbling US economy and low interest rates make it very difficult for the US to attract foreign investment to fund its massive deficit, measured at 6% of GDP in 2006 and estimated to be similar in 2007. Other nations’ central banks are considering raising interest rates and such actions could further weaken the US dollar. The Canadian dollar traded in the $0.98 - $1.02/USD range and is projected to maintain that range with respect to the US dollar.