Canada Business Forecast Report Q4 2013: New research report available at Fast Market Research

From: Fast Market Research, Inc.
Published: Mon Aug 05 2013

The Canadian economy will continue to slow down due to weakening residential construction and household consumption, but should avoid falling into recession. The mix of growth will continue to shift away from private consumption and toward net exports, as household balance sheets remain under pressure, and US demand picks up.

With a relatively strong Canadian dollar and low interest rates, business investment will be a major driver of growth, though the trade balance will remain in deficit. Risks to the dollar are balanced toward weakness, however.

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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 we see the federal budget balance returning to surplus by 2016-2017.

Key Forecast Changes

Given a strong first quarter of 2013 pushing up base effects, we have raised our real GDP growth forecast for Canada in 2013 to 1.7% from 1.5% - though our outlook has not substantively changed. For 2014, we see an improvement to 2.4%.

We have lowered our headline consumer price inflation average forecast for 2013 to 1.5% from 2.0%, and expect inflation to remain below the 2.0% Bank of Canada target for the foreseeable future.

Key Risks To Outlook

Downside Risks To Growth Forecast: Domestically, a hard landing for the housing market could push the Canadian economy into recession. Externally, a relapse in US growth would hit Canada's attempt at economic rebalancing particularly hard, as it would severely hurt demand for Canadian exports and damage corporate investment sentiment. A hard landing in China would cause a commodities collapse, further damaging Canadian terms of trade.

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 corporate 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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