TORONTO - War in Iraq and the threat of SARS are expected to have an impact on world wide consumer spending, says the latest Consumer Watch Report published by CIBC. The report also predicts that this current spending freeze will take longer to thaw than it did with the first Gulf War.

"We've seen consumer confidence fall steeply in the past six months," says Benjamin Tal, CIBC World Markets' senior economist, referring to the seven per cent drop in the Conference Board's Index of Consumer Confidence. "This is significant because a drop of this magnitude - and so quickly is usually followed by an economic slowdown. At this point, it's now impossible for consumer spending to match last year's performance."

Tal further predicts that the booming housing and vehicle markets have passed their peak. These two industries combined accounted for more than one third of the increase in consumer spending for 2002. Demographics, cost, and employment projections will each contribute to the slower real estate market. Total auto sales are expected to fall by five per cent in 2003 after experiencing an eight per cent increase over the past two years.

"If the Bank of Canada is true to its word and raises the bank rate to its 'neutral rate' of approximately 4 per cent, we are left with an even weaker spending picture," says Tal. "We believe that the Bank of Canada will rethink its current hawkish position and allow a stronger Canadian dollar - the least damaging tightening vehicle from the consumer perspective - to do most of the heavy lifting."

For a full version of the Consumer Watch Report go to http://research.cibcwm.com/economic_public/download/cw-042003.pdf .

If you enjoyed this article, be sure to visit CanadaOne's article knowledge base for more informative articles.