Keep your seatbelt fastened in 2013, economists say.
Canada’s gross domestic product is likely to grow at just below 2 per cent in the coming year — and a big external shock could send the economy spinning.
In reports issued separately on Wednesday, the International Monetary Fund and CIBC World Markets Inc. laid out their predictions for 2013.
Both forecasts warn that Canada is likely to be hit with lower commodity prices, and say that if the U.S. drives over the fiscal cliff early in the new year, Canada will have no choice but to go along for the ride.
They also suggest that 2014 will be a better year.
CIBC predicts “very mediocre” growth for Canada next year, blaming a weak world economy and an absence of key economic drivers at home.
The bank expects economic growth of 1.7 per cent in 2013. That’s down from the 2 per cent rate it predicted in its previous forecast.
While oil and gas production is set to rise next year, those gains will be offset by weaker activity in mining, fertilizer, and natural gas output.
Housing, consumer demand and government spending, all in full force since the recession, are now tapped out and won’t be able to ride to the economy’s rescue, the bank said.
“Having earlier tapped fiscal stimulus and a housing boom to shelter the economy from sluggishness abroad, the country’s ability to set its own course is now much more limited,” Avery Shenfeld, the bank’s chief economist, said in a report.
“Escaping economic mediocrity will depend on the kindness of strangers, with exports and related capital spending critical to Canada’s fate in 2013-14.”
Economic growth is expected to rise to 2.4 per cent in 2014, CIBC said.
“Add it all up and even with ultra-low rates through 2013, the economy is set to decelerate to the slowest pace since the recession. But the 2013 slowing is just the economy’s last fatigued lap after running a race on little other than a steady shot of low rates,” the report said.
“Thankfully, in 2014, rising external demand should see the economy catch a second wind, boosting growth, interest rates, and the (Canadian dollar) in tandem.”
CIBC suggests that the Bank of Canada will stand pat on interest rates until 2014.
The IMF, in its slightly more optimistic forecast, suggested that the central bank should put off rate hikes until late 2013 at the earliest in order to give the economy a chance to grow.
“The beginning of the monetary tightening cycle should be delayed until growth strengthens again,” the Washington-based fund said in its latest report on the Canadian economy.
The IMF expects growth to come in at 1.8 per cent in 2013 and 2.25 per cent in 2014.
The agency praised the state of the domestic economy, while noting that the potential impact of the European sovereign debt crisis and the upcoming U.S. fiscal cliff, a slate of more than $600 billion (U.S.) in tax increases and spending cuts that will take effect in January unless lawmakers hammer out an alternative, still loom large.
And that’s where high household debt levels become a risk, the report said.
“The impact of these shocks on the Canadian economy would be exacerbated by the elevated levels of household debt” because the capacity to borrow would be very limited, the IMF report said.
The same is true for the housing market, Roberto Cardarelli, the head of the IMF’s mission to Canada, told reporters in Toronto.
Canada’s housing market will see a 1 to 2 per cent price drop over the next two to three years after expanding too far, he said. But there is little risk of the type of housing bubble that crippled the U.S. economy.
“We don’t see the housing sector as a risk, per se,” Cardarelli said. “The risk is that if something happens outside of Canada, the fiscal cliff for example, it’s going to find Canada in a more vulnerable position.”
The IMF will release its full outlook on the global economy, including Canada, in late January.
Original Article
Source: the star
Author: Madhavi Acharya-Tom Yew
Canada’s gross domestic product is likely to grow at just below 2 per cent in the coming year — and a big external shock could send the economy spinning.
In reports issued separately on Wednesday, the International Monetary Fund and CIBC World Markets Inc. laid out their predictions for 2013.
Both forecasts warn that Canada is likely to be hit with lower commodity prices, and say that if the U.S. drives over the fiscal cliff early in the new year, Canada will have no choice but to go along for the ride.
They also suggest that 2014 will be a better year.
CIBC predicts “very mediocre” growth for Canada next year, blaming a weak world economy and an absence of key economic drivers at home.
The bank expects economic growth of 1.7 per cent in 2013. That’s down from the 2 per cent rate it predicted in its previous forecast.
While oil and gas production is set to rise next year, those gains will be offset by weaker activity in mining, fertilizer, and natural gas output.
Housing, consumer demand and government spending, all in full force since the recession, are now tapped out and won’t be able to ride to the economy’s rescue, the bank said.
“Having earlier tapped fiscal stimulus and a housing boom to shelter the economy from sluggishness abroad, the country’s ability to set its own course is now much more limited,” Avery Shenfeld, the bank’s chief economist, said in a report.
“Escaping economic mediocrity will depend on the kindness of strangers, with exports and related capital spending critical to Canada’s fate in 2013-14.”
Economic growth is expected to rise to 2.4 per cent in 2014, CIBC said.
“Add it all up and even with ultra-low rates through 2013, the economy is set to decelerate to the slowest pace since the recession. But the 2013 slowing is just the economy’s last fatigued lap after running a race on little other than a steady shot of low rates,” the report said.
“Thankfully, in 2014, rising external demand should see the economy catch a second wind, boosting growth, interest rates, and the (Canadian dollar) in tandem.”
CIBC suggests that the Bank of Canada will stand pat on interest rates until 2014.
The IMF, in its slightly more optimistic forecast, suggested that the central bank should put off rate hikes until late 2013 at the earliest in order to give the economy a chance to grow.
“The beginning of the monetary tightening cycle should be delayed until growth strengthens again,” the Washington-based fund said in its latest report on the Canadian economy.
The IMF expects growth to come in at 1.8 per cent in 2013 and 2.25 per cent in 2014.
The agency praised the state of the domestic economy, while noting that the potential impact of the European sovereign debt crisis and the upcoming U.S. fiscal cliff, a slate of more than $600 billion (U.S.) in tax increases and spending cuts that will take effect in January unless lawmakers hammer out an alternative, still loom large.
And that’s where high household debt levels become a risk, the report said.
“The impact of these shocks on the Canadian economy would be exacerbated by the elevated levels of household debt” because the capacity to borrow would be very limited, the IMF report said.
The same is true for the housing market, Roberto Cardarelli, the head of the IMF’s mission to Canada, told reporters in Toronto.
Canada’s housing market will see a 1 to 2 per cent price drop over the next two to three years after expanding too far, he said. But there is little risk of the type of housing bubble that crippled the U.S. economy.
“We don’t see the housing sector as a risk, per se,” Cardarelli said. “The risk is that if something happens outside of Canada, the fiscal cliff for example, it’s going to find Canada in a more vulnerable position.”
The IMF will release its full outlook on the global economy, including Canada, in late January.
Original Article
Source: the star
Author: Madhavi Acharya-Tom Yew
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