Growth and Labour Input in North America

Output growth slowed in the US and Mexico in the first quarter of 2007, while the Canadian economy accelerated. The US and Mexico both suffered from weak export growth, with the housing market continuing to put strain on domestic demand growth in the US. In aggregate, North American growth slowed to just 0.3 per cent relative to the previous quarter. Inflation accelerated in both the US and Canada in the first half of 2007, prompting a rise in Canadian interest rates. Rising inflation stems partly from tight labour markets, which have put upward pressure on wages. Labour market pressures in Canada are likely to be offset by the impact of the 6 per cent rise in the country's effective exchange rate between the first and second quarters of 2007, whilst the renewed weakness of the dollar, which fell by 2 per cent in effective terms between the first and second quarters of 2007, is likely to exacerbate inflationary pressures.