Bank drops GDP growth forecast three-tenths to 1.7% but sees pick-up in
TORONTO, Dec. 19, 2012 /CNW/ - Without key domestic economic drivers to
shelter Canada from a continued weak global economy, GDP growth will
slip to a very mediocre 1.7 per cent in 2013, finds CIBC's latest
Canadian economic forecast.
"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," says Avery Shenfeld, chief economist
at CIBC. "Escaping economic mediocrity will depend on the kindness of
strangers, with exports and related capital spending critical to
Canada's fate in 2013-14."
Mr. Shenfeld says that the global economy continues to face significant
headwinds and as a result he has cut his global outlook for 2013 by
two-tenths to three per cent. "It's too early to get the full benefits
of policy stimulus in Asia, Europe is too stubborn to soften its fiscal
drag enough and amplify ECB bond purchases, and Washington is too
wedded to getting going on fiscal tightening stateside, if not the full
He adds that while Chinese GDP could show improvement towards an eight
per cent pace as early as Q4 of 2012, it is not likely to have much of
an impact on other economies as Chinese imports are currently showing
no growth at all on a year-over-year basis. As such, he expects there
to be a delay before crude oil and other resources rebound in price.
"The absence of a helping hand from abroad will leave Canada exposed,"
says Mr. Shenfeld. "Blaming temporary disruptions in energy production
in Q3 for recent disappointments misses the point: GDP excluding
resource extraction has also been decelerating, the loss of home
building momentum will offset greater oil output.
"Our downgraded 1.7 per cent growth forecast for 2013 will trail the
U.S. pace and is three ticks slower than our last projection. Household
debt burdens are keeping consumption bounded by the moderate growth
pace for real incomes. Governments also face leaner-than-expected
coffers due to downward revisions to nominal GDP expectations, and will
be introducing further spending restraints or tax hikes for fiscal
The report notes that in the near term, this environment will see
investors maintain a risk-adverse attitude and see further downward
adjustments to corporate earnings expectations. Assets tied to global
growth, including commodities and the most cyclical equities, could be
flat or see some first half slippage. This will exert near-term
downward pressure on the loonie. Equities with less cyclical earnings
profiles and well-backed dividends, as well as investment grade
corporate bonds, will remain in favour for the next couple of quarters.
Optimism for 2014
"Diamonds are forever, but weak economic growth need not be," adds Mr.
Shenfeld. "With its household sector healing, the U.S. should be
positioned to lead the way towards a better year come 2014 if, as we
expect, new fiscal tightening measures do not hit as deeply that year.
Don't underestimate the importance of the upswing underway in housing.
As it gathers steam, it will drive related consumer spending ("new
living room, new couch") and renovation ("those cabinets have to go"),
in addition to actual home-building jobs."
He also expects by 2014 that China will be feeling the full benefit of
its own policy easing and the improvement in U.S.-bound exports. Even
Europe, if it finally recognizes the need for both a softer hand in
fiscal tightening and a more aggressive central bank, might at least
register positive growth at that point.
"These developments will propel 2014 exports and resource sector capital
spending in Canada, finally delivering the 2½% quarterly growth rates
that the Bank of Canada has been expecting, or hoping for, in the past
two years," adds Mr. Shenfeld.
"The brighter news on that front, coupled with conservative starting
valuations for equities, leaves room for a "risk on" rally in the
coming summer and autumn. It's too far out to act on just yet, but by
mid-2013, it should be time to shift portfolios into cyclical equities
and industrial commodities to take advantage of that likely turn in
He believes interest rates will hold steady in Canada through 2013 but
that Governor Mark Carney's successor will nudge rates up 50-75 basis
points in 2014.
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/fdec12.pdf.
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SOURCE: CIBC World Markets
For further information:
Avery Shenfeld, Chief Economist at 416-594- 7356, firstname.lastname@example.org or Kevin Dove, Head of External Communications at 416-980-8835, email@example.com.