2012-11-14 22:28:55 - Canada Business Forecast Report Q4 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 is likely to avoid falling into recession. Growth will continue to shift away from household consumption and towards non-residential investment. Still-high global commodity prices will support Canada´s 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 2017.

Major Forecast Changes

Our

 

 

2012 real GDP growth forecast for Canada remains 2.0%, but we have downgraded our forecast for 2013 to 2.1%, from 2.3% previously. The balance of evidence suggests that the economy has and will continue to avoid recession barring a major crisis, but the downside shock risks remain prevalent. We now see the Bank of Canada keeping the bank rate on hold until mid-to-late 2013, whereas we had previously projected earlier and faster hikes. This is due to both our lower economic growth forecast,and an increasingly concerning external picture.

Key Risks To Outlook

Downside Risks To Growth Forecast: A collapse of the eurozone would send shock waves through global trade and financial markets. A hard economic landing in China would hurt demand for commodities, weighing on Canada´s 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 pickup in private investment in the near future, without a structural improvement in business investment and key national industries, potential GDP growth over the long term could be closer to 2.0% than the 2.3%-2.4% that we expect.

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