Positive Canadian economic growth
in second half of 2013
Canadian home sales likely to stabilize
Existing home sales are likely to stabilize in the coming months. Most of the weakness seen over the last eight months can be seen as a result of the change in mortgage insurance rules that were implemented in July 2012 (which had the same impact on housing prices as a 1% increase in interest rates). Changes to mortgage insurance rules usually tend to drag down on growth in home sales for up to 3 quarters - therefore this impact is expected to vanish in the coming months. Sales are now at levels that are greatly supported by underlying employment and population growth. As demand for Canadian housing continues to be modest, prices are expected to continue to weaken. The impacts vary for different regions - Vancouver home prices have fallen 10% and sales have fallen 36%. Current home sales in Toronto have weakened, however increasing inventory (because of the amount of overbuilding in that market) will likely force downward pressure on prices.
U.S. strong retail sales growth
U.S. retail sales rose 1.1% in February. Sales growth in January was also shown at an increase at 0.2%. As a result, positive sales point to a great outlook for consumer spending in the first quarter of 2013. With this support, U.S. economic growth is likely to increase to approximately 2.5% in Q1. However, there are still challenges facing households and the economy - the impact of the limit on the federal budget and the impact of higher taxes and high prices at gas pumps, is likely to lead to a slowdown in growth in Q2. The unemployment rate declined to 7.7% from 7.9% in January. If this pace of job creation is maintained, U.S. employment would increase by approximately 2.3 million this year.
Job growth in Canada to remain positive
While debt growth is expected to continue to move more in line with income, the level of Canadian household debt is currently a concern. The federal government and households are continuing to benefit from lower debt servicing costs (due to the low interest rate environment). The Bank of Canada's current position on low interest rates and low inflation is also expected to continue. While there are still headwinds and downside risks present, these should fade away allowing economic growth in Canada to pick up in the second half of the year. The Canadian economy is anticipating the corporate sector to be the stronghold in 2013 by increasing spending on investment and hiring. Canadian job growth in 2013 year-to-date is seeing positive numbers. Businesses are expressing hiring intentions which looks like the job growth number will remain positive looking ahead. The jobless rate is expected to average 7.1% in 2013.
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