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High pump prices to dampen sales in Canada

Vehicle production and sales in Canada and the United States will slow in 2006 as high gasoline prices eat into disposable income, according to an outlook from Scotiabank.

The bank's Global Auto Sales Outlook said employee discounts in 2005 resulting in the likely peaking of sales figures in both countries. It estimates that sales of cars and light trucks will drop by 20,000 in 2006 to 1.57 million.

"Going forward, [sales] volumes will be dampened by high gasoline prices and other energy costs, now absorbing a record share of disposable income," Scotiabank senior economist Carlos Gomes wrote.

The outlook says the slowdown will be concentrated in central and eastern Canada, with sales in Alberta setting new records as the oil and gas sector continues to expand.

Scotiabank estimates that vehicle production in Canada will drop by 50,000 to 2.6 million in 2006.

In the U.S., the slowdown will be more pronounced. The bank's forecast calls for 16.5 million vehicle sales, down 500,000 from 2005.

"Energy and interest costs now absorb a record one-quarter of overall household disposable income," Gomes said.

The report pegged China as the world's fastest growing auto market in 2005, with sales up 18 per cent. Scotiabank economists are looking for a further 10 per cent increase in 2006.

Sales in Mexico and South America are forecast to rise by 5 per cent in 2006 as interest rates move lower.