2012-09-05 09:29:10 - Canada Business Forecast Report Q2 2012 - a new country guide report on companiesandmarkets.com

The Canadian economy faces major external headwinds from the US, Europe, and increasingly, China. However, Canada should avoid falling into recession. The mix of growth will continue to shift away from household consumption and towards non-residential investment.

Still-high global commodity prices will support Canadas terms of trade. With a strong Canadian dollar and low interest rates, business investment will be a major driver of growth, though the trade balance will remain in deficit.

Among developed states, and in stark contrast to the neighbouring US, Canada has an enviable fiscal record. We see very limited risk of a Canadian fiscal crisis and, in fact, see debt ratios declining from this year onwards, with the budget returning to surplus by the end of the

 

 

forecast period in 2016.

Major Forecast Changes

We have raised our 2011 Canadian real GDP growth estimate to 2.4% in 2011 (from 2.3% previously) and our 2012 forecast to 2.0% (from 1.8%). Our growth forecasts assume external headwinds from Europe and Asia, contrasted with an improving US economy. We now see the Bank of Canada keeping the bank rate on hold until 2013. This is owing to subsiding inflation and an increasingly worrying external picture.

We have slightly adjusted our Canadian dollar forecasts, and are now expecting an average of CAD1.03/US$ (compared with CAD1.01/ US$ previously) in 2012, and CAD1.07/US$ in 2013 (unchanged). We expect the Canadian dollar to be underpinned by a relatively favourable interest rate path compared with the US.

Key Risk To Outlook

Downside Risks To Growth Forecast: A collapse of the European monetary union would send shockwaves through global trade and financial markets. A hard economic landing in China would hurt demand for commodities, hurting Canadas terms of trade. Weakness in the domestic real estate market also poses a threat.

Downside Risks To Long-Term Forecast: The major historic weakness of Canadian economic growth has been low productivity. Although we expect a pick-up in private investment in the near future, without a structural improvement in business investment and key national industries, potential GDP growth could be closer to 2.0% than the 2.3-2.4% that we expect.The price of this business forecast report covers 4 quarterly reports on this country. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

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