Economic outlook brightens for 2011

Courtesy: The Finanical Post

Canadian banks boost growth forcasts

OTTAWA — After slowing to a crawl, Canada’s economy is expected to get back on track in 2011 on expectations for sustained domestic growth and an improved outlook for the United States, according to reports Wednesday by two of Canada’s major banks.

— Reuters File Photo Stronger prices for commodites such as potash are forecast to boost the economy in the Prairie provinces

TD Economics boosted its growth forecast for the year ahead to 2.6 per cent from two per cent previously. RBC, meanwhile, maintained its 3.2 per cent outlook for 2011, but added that its outlook for this year — at 3.1 per cent — and next year marks the fastest pace of growth over the past four years.

“ The mid-year economic slowdown reflected a pullback in housing investment, which fell after five consecutive quarterly increases and a mild downturn in exports,” says Craig Wright, chief economist at RBC. “ However, financial conditions remain supportive of domestic growth, which will be the main engine of the expansion going forward.”

Still, the growth will not be evenly shared.

Stronger commodity prices should put the Prairies and Newfoundland and Labrador at the top of the heap, while Central Canada will struggle as the initial returns to growth in hard-hit manufacturing and housing sectors diminish, TD said in its quarterly economic forecast.

Nor will the growth be shared evenly between the employed and the unemployed.

The jobless rate will remain elevated and is expected to close out 2010 at eight per cent, RBC says, edging down to 7.4 per cent by the end of 2011 and seven per cent by the end of 2012.

Yet recent data support the outlook for improving growth. October manufacturing sales, reported Wednesday, were better than expected and housing resales, also reported Wednesday, rose for the fourth straight month in October.

But both RBC and TD say consumers, whose home-buying ways made them the mainstay of the recovery, are ready to pass the baton to the business sector.

In fact, RBC expects businesses will play a “ pivotal role” in the economy’s continuing momentum as the recovery matures and companies are pressed to improve productivity. Already, as TD points out, businesses have ramped up spending on machinery and equipment by 30 per cent for the second straight quarter.

TD says the most significant reason for its improved Canadian outlook is the U. S. Federal Reserve’s recent decision to stimulate the economy with $ 600 billion in bond purchases and Washington’s plan to extend Bush-era tax cuts.

“ These measures are expected to impact near-term economic growth through two channels,” says Derek Burleton, TD’s deputy chief economist. “ First, it increased the likelihood that the Bank of Canada will keep the overnight rate on hold for a longer period of time. And second, U. S. economic growth prospects are moderately brighter than we had envisaged a few months ago.”

That should help boost Canada’s exports to the U. S., the country’s largest trading partner, as demand increases south of the border.

Still, manufacturers will have to contend with a currency that is expected to remain elevated.

And on the domestic front, headwinds include normalization of interest rates, which, at the Bank of Canada’s benchmark lending rate of one per cent, remain well below historical averages, consumer debt loads that are even higher than those in the U. S. and weak productivity.

The Matthew Olsgard Team

The Matthew Olsgard Team

CENTURY 21 Fusion
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