Canada will avoid recession, board says
Story courtesy of FinancialPost.com
Last Updated: Thursday, October 20, 2011 | 01:06 PM EDT
OTTAWA— A double-dip recession isn’t in the cards for Canada, but the outlook is for little more than sluggish growth and relies on the “brave” assumption the European Union can solve its sovereign debt crisis, the Conference Board of Canada said Thursday.
“The ongoing volatility in equity and commodity markets is a reminder of how fragile the state of the U.S. and global economy remains. While the turmoil is not expected to derail the global outlook altogether, growth has slowed markedly over the last few quarters,” said board director Pedro Antunes.
The board is still calling, however, for 2.1% growth in 2011 and 2.4% growth in 2012, relatively unchanged from its outlook in the summer edition of the report.
But for the U.S., it has downgraded its outlook to just 1.5% for 2011 and 2.5% for 2012, still well below the growth that would normally occur at this stage of the business cycle.
“There remains an exceptional degree of risk to the outlook,” the board cautioned.
“A sluggish outlook for the United States is not good news for Canada and the economic situation in Europe is even more uncertain and fragile than in the U.S.”
The report was issued as European leaders stumble from one apparent misstep to the next in the lead-up to a weekend summit that may or may not occur — according to news reports Thursday — but whose ostensible goal is to substantially address the issues facing the monetary union.
The Ottawa think-tank forecasts that in Canada growth will be hindered by overindebted consumers and governments cutting back on spending. That will be counterbalanced by strong commodity prices that will boost business investment and spur private-sector employment.
The current economic environment will keep the Bank of Canada on the sidelines until late in 2012, as will weak inflationary pressures that will result in the consumer price index increasing by only two per cent in 2012, the board said.
Growth will come as commodity prices bounce back from their recent swoon, driven by demand from emerging markets. U.S.crude oil prices will average US$95 in 2011 and climb to an average of US$97 a barrel in 2012, the board said.
Overall job growth, meanwhile, is forecast to average two per cent in 2012 and 2013, following a 1.7% gain in 2011. The unemployment rate will fall to 6.3% by the end of 2013 from the current 7.1% rate.
The board expects the housing market to soften over the next few quarters, resulting from reduced affordability and reduced consumer confidence. Existing home prices will rise by a much slower 2% in 2012, while housing starts are forecast to average 186,000, about the same as in 2011.
Business investment in machinery and equipment is likely to slip from strong levels earlier in the year as confidence has been shaken by developments in Europe. Nevertheless, while moderating from just over 13% in 2011 to 6.6% growth in 2012, real business investment should augur well for employment and productivity gains as energy investment wanes but remains at lofty levels, Antunes said.
Trade is expected to contribute “handsomely”to growth, with merchandise export volumes rising at an average annual pace of 6% over the next two years from 4.3% in 2011, despite the loonie being expected to return to average just over US$1.02 in 2012.
Import growth will prevent the merchandise trade balance from contributing to growth through the forecast horizon, though the more balanced outlook “is a significant turnaround from the pattern over the past decade, in which an appreciating currency had the effect of eroding the real merchandise trade balance by close to $180-billion since 2001,” Mr. Antunes said.
Share Tools
Business News from financialpost.com
Top News Headlines
- Carney warns of potential housing market trouble
- Canada's top banker Mark Carney suggests in an interview on CBC Radio's The House with Evan Solomon that the housing market could be headed for trouble in parts of the country where home prices are high. more »
- UN to expand Syria observer mission
- Activists say fighting and government shelling stopped in Syria's central city of Homs as the United Nations voted to expand its mission in the country. more »
- White Sox's Humber throws MLB's 21st perfect game
- Phil Humber threw the first perfect game in the majors in almost two years, leading the Chicago White Sox to a 4-0 victory over the Seattle Mariners on Saturday. more »
- Why Canada just pumps out cheap oil
- Oil prices are rising internationally, but Canada's oil patch isn't seeing the benefit one might expect from that. The reasons why are complicated but serious enough to have the Bank of Canada's attention. more »
Latest Business Headlines
- Flaherty affirms no eurozone bailout funds from Canada
- Finance Minister Jim Flaherty is standing firm on Canada's position that it will not ante up part of the $400 billion US sought by the International Monetary Fund for an emergency eurozone fund. more »
- IMF boosts bailout funds by $430B US
- The International Monetary Fund says it has raised more than $430 billion in an effort to assure finance markets that it has sufficient firepower to handle any new problems from Europe's prolonged debt crisis. more »
- Why Canada just pumps out cheap oil
- Oil prices are rising internationally, but Canada's oil patch isn't seeing the benefit one might expect from that. The reasons why are complicated but serious enough to have the Bank of Canada's attention. more »
- Muskrat megaproject called burden for future generations
- Critics of Muskrat Falls say the battle over natural gas pipeline tolls shows how inflexible megaprojects can hamstring consumers. more »
Lang & O'Leary Exchange
Markets
Index | Last Trade | Change |
---|---|---|
TSX COMPOSITE | 12147.28 | -6.41 |
DOW | 13029.26 | 65.16 |
NASDAQ | 3000.45 | -7.11 |
SP 500 | 1378.53 | 1.61 |
NYSE COMPOSITE | 8025.43 | 29.53 |
2417.47 | 16.21 | |
TSX-VENTURE | 1397.95 | 1.18 |
The data on this site is informational only and may be delayed; it is not intended as trading or investment advice and you should not rely on it as such.