Canada poised for slow growth in 2013

After a weak close to 2012, many worried that the Canadian economy might falter in 2013. But a new report from CIBC World Markets says 2013 will be a year of continued growth for Canada, albeit at a lacklustre pace.

“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 with CIBC. “Based on admittedly slim evidence, there are reasons to believe that Q1 growth will be better.”

Shenfeld explains that while Canadian employment dropped in January, hours worked increased. Auto sales also appear to have hit an upswing, which is generally a sign of greater consumer confidence. Also, says Shenfeld, the resolution of energy sector disruptions 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.”

However, the CIBC report predicts that the domestic economy will see just a 1.7% growth rate in 2013, which will translate into a higher unemployment rate for the year.

Shenfeld says the indications of slow growth will keep the Bank of Canada from raising rates until the third quarter of 2013, two quarters later than previously forecast. This will result in the loonie remaining below parity with the U.S. dollar until the second quarter of 2014.

Shenfeld also noted that a key unknown—global economic growth—could have a positive effect on the Canadian economy if it improves enough to drive increased exports.

“Here’s hoping that we’re right in our view that better global growth rides to the rescue come 2014, giving the lift to exports and resource prices that will be needed to spur the corporate sector on.”

View the complete CIBC World Markets report here.