Despite a downturn in U.S. economic growth, Canada has enough strength in its domestic economy to grow by 2.7% in 2007 and 3.3% in 2008, suggests the Conference Board of Canada in a new report.

“The wealth generated by high resource prices is the primary reason why Canadian household incomes, corporate profits and government coffers grew strongly in 2006,” said Pedro Antunes, director, National and Provincial Forecast. “While some commodity prices have slipped recently, resource prices in general remain strong, and they are expected to continue producing wealth throughout the Canadian economy.”

“Another year of healthy income growth and the possibility of further tax cuts from federal and provincial governments mean that consumers will continue to form the backbone of Canadian economic growth in 2007,” he added.

Canadians’ real after-tax household income growth peaked in 2006 at 4.7%, and is expected to moderate slightly, to 3.2% on average, in each of the next two years. The Conference Board’s Index of Consumer Confidence rose by 1.6 points in December, which further indicates that consumers are feeling good about job prospects and household finances.

The U.S. consumer is a key factor in the Canadian outlook. The correction in American real estate markets is causing U.S. household spending to soften, but a “soft landing” for U.S. growth is still expected. The slowdown in U.S. vehicle sales and decline in residential construction are affecting Canada’s auto, lumber and construction export volumes. However, a weakening Canadian dollar will benefit export-oriented industries, allowing real exports to grow by more than 2% in 2007.