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Canadian Economic Growth To Improve But Remain Sluggish In 2013: CIBC

Stocks in this article: CM

Business investment waiting for global growth to spur demand for Canadian exports

TORONTO, March 4, 2013 /CNW/ - While Canada's economy limped to a close last year, it is not a sign of worse things to come in 2013 - although growth will continue to be lacklustre for some time, finds a new report from CIBC World Markets Inc.

"Any time growth slows to a crawl, one has to worry that it wouldn't take much to push the economy over the edge," says Avery Shenfeld, chief economist at CIBC. "Based on admittedly slim evidence, there are reasons to believe that Q1 growth will be better."

He points out that while employment dropped in January, hours worked are up. He also notes that auto sales look like they've rebounded - generally a signal of consumer confidence - and that the resolution of energy sector disruptions has resulted in an increase in oil exports to the United States through mid-February.

"So it looks like, in terms of quarterly GDP, Q4 could end up being the storm before the calm, with an improved pace ahead," says Mr. Shenfeld.

However, he warns that challenges domestically and globally will result in only tepid improvement. CIBC's forecast sees the economy tracking only a 1.7 per cent growth rate in 2013, a pace that will see the unemployment rate drift higher.

Mr. Shenfeld believes that the weak close to 2012 and the modest rebound ahead will keep the Bank of Canada from raising rates until third quarter of 2013, two quarters later than previously forecast. The delay in raising rates will also result in the Canadian dollar remaining below parity with the U.S. dollar until the second quarter of 2014.

"Instead of smoothly passing the growth baton from governments and households to business spending and exports, there's been a fumble," he says. "Housing has slowed, as has consumer borrowing, and governments face pressures to tighten belts. But businesses aren't opening their wallets."

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