Canadian economy expected to see impact from domestic issues such as a
slowing housing market and household deleveraging, while still facing
external headwinds from the U.S., China and Europe.
TORONTO, Dec. 12, 2012 /CNW/ - Internal threats to Canada's economic growth are expected to play a
greater role next year, adding to the headwinds from Europe, the U.S.
and China, Russell Investments' team of global investment strategists
predicts in the firm's 2013 Annual Global Outlook.
The domestic economy, emerging from an "underwhelming" 2011, is expected
to be further tested by a lethargic housing market, weary consumers
and waning corporate profitability, according to Shailesh Kshatriya,
senior investment analyst with the Canadian Strategy Group at Russell
Investments Canada and a contributor to the annual global outlook.
"We have already seen signs of moderation in some of the country's
biggest housing markets," Kshatriya notes. "A slower housing sector has
an impact on private consumption, which represents more than half of
Canada's GDP. Furthermore, after a decade of running up their debt
loads, Canadian households are starting to tackle their balance sheet
and are becoming thriftier."
Along with slowing retail sales, Kshatriya also sees a shift in
corporate profitability on an expected moderation in commodity prices.
Russell's Core Expectations for 2013: Canadian Highlights
Canada's economy will grow between 1.7%-2%, with risks skewed towards
the lower number;
The Bank of Canada leaves overnight target rate unchanged;
Government of Canada 10-year bond yields will be modestly higher, in the
The Canadian dollar remains within the parity range of $0.95-$1.05 (USD
S&P/TSX Composite Index to end 2013 at 12,600; Earnings per share growth
U.S. economic growth of 2.1% for 2013, increasing to 2.5%-2.75% by the
second half of the year; Tepid U.S. core inflation for the medium term
at 1.9%; U.S. 10-year yield at 2.15% by year-end 2013.
"While our tone is cautious for 2013, Canada is in a unique position
both fiscally and monetarily," Kshatriya highlighted. "From a fiscal
perspective, debt-servicing costs remain low, and as indicated by our
10-year yield forecast, we don't expect that to change. In addition,
the fiscal position is sound, as net debt to GDP is not egregious. The
turnover at the head of the country's central bank should not take away
from the Bank's ability to stimulate the economy if downward risks
materialize in a more significant manner."
Russell's global forecast for 2013 predicts a positive, albeit volatile
investment environment, noting that investors can expect a modest
global recovery, driven primarily by a continuation of U.S. and Chinese
economic growth. Even so, volatility will likely remain elevated
through most of the year, driven by the tug of war between deflationary
austerity and reflationary monetary policy in the eurozone.
Russell believes six key themes will have the greatest impact on markets
and asset returns in 2013:
U.S. economic outlook for 2013: A time to address long-term issues at
The Eurozone: Finding the right policy mix
Global Equities: A rising tide may not lift all boats equally
Emerging Markets: Due for outperformance
Global currency outlook for 2013: More of the same, but risks aplenty
Commodities: It's not just about monetary policy
Russell has forecast since 2009 that the U.S. economy would follow a
square-root shaped recovery pattern, and events have played out
consistently with these expectations. For 2013, Russell's base case
scenario anticipates a continuation of this
reluctant-yet-measurably-positive recovery pattern.
"The U.S. strikes us as an undervalued field, both in terms of the
equity pricing and overly pessimistic economic growth expectations,"
said Pete Gunning, global chief investment officer, Russell
Investments. "We would be surprised if the equity market does not cash
in that value by the end of the year."
The Squeeze Play: Searching for Real Returns in a Yield-Starved World
On the other side of the square-root shaped recovery and real interest
rates in negative territory, is the reality that investors still have
the demand of a real return on their assets. In view of the dynamics of
the recovery, lingering impacts of the Great Recession and intervention
by the U.S. Federal Reserve, Russell forecasts that the net effect on
investors will be that of "squeezing" them out of traditional
safe-haven assets and forcing them further up the risk curve.
"Since only positive real returns build wealth, investors are forced to
confront the question of what is to be done in a yield-starved world.
This 'squeeze play' impulses people into riskier assets; we continue to
advise clients to proceed purposefully and with strategic discipline,"
said Gunning. "For investors, this means attention to every detail of
their portfolio management. We believe regional diversification will
need to be firmly in place, as the economic center of gravity is
expected to continue to shift. As traditional investments remain flat,
alternatives likely will matter more than ever. And volatility, while
it certainly brings market stress, will also bring market opportunity
for multi-asset, dynamically managed portfolios."
For complete findings and details on the themes and forecasts from
Russell's 2013 Annual Global Outlook, please contact Rob Baird at
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