2013-01-01 13:27:53 - Canada Business Forecast Report Q1 2013 - 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 private consumption as household balance sheets remain under pressure.
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 the
end of the forecast period in 2017.
Major Forecast Changes
Our 2012 real GDP growth forecast for Canada remains 2.0%, but we have downgraded our forecast for 2013 to 1.9% from 2.1%. 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 2014, whereas we had previously seen hikes by the end of 2013.
This is due to both our downgraded economic growth forecast, and an increasingly worrying external picture.
Key Risks 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 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 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.
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