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2012 economic forecasts: Canada best place to be
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By Madhavi Acharya-Tom Yew | Moneyville
There will be significant volatility in financial markets, for three main reasons: In the U.S. and in Canada, growth will struggle to be 2 per cent this year. Europe will have no growth, and the emerging world is still on the fast track, but there will be a slowdown in the overall economic activity.
That has an implication for business earnings. It can also create problems for governments, which rely on economic growth for tax revenue.
Then there’s the never-ender in Europe. Remember that they are trying to contain the sovereign debt issue. There is no cure on the table. We will have a number of band-aids put on this over the next little while. But at the end of the day, the longer term problems of dismal growth and the demographic issues Europe faces suggest to me that we will still be talking about the European debt issue five years from now.
The third issue is that the U.S. is not having an adult conversation about its fiscal problems.
When you put those three together, it virtually guarantees a lot of volatility in bond, currency, and commodities markets. [More: 60% of Ontarians live paycheque to paycheque]
Still, when you look at what exists in Canada, this is still the best country in the world to be in. We are sheltered in many, many ways in our domestic markets from the enormous shifts that are occurring in the rest of the world.
Doug Porter, deputy chief economist for BMO Capital Markets, on the U.S. economy
Over the last four or six months, the one rare bright spot for the world economy has been how well the U.S. economy has actually held up.
In 2011, U.S. consumer spending actually grew faster than Canadian consumer spending for the first time in five years. We think that’s something that’s going to be repeated in 2012.
Over the last 12 months, U.S. employment has also grown every bit as quickly as it has in Canada. I think there truly has been a shift in the U.S. employment landscape.
For 2012, we are looking at economic growth in the U.S. of 2.25 per cent. No one will mistake that for being a healthy robust economy, but, keep in mind where we were just a few months ago. Recession chatter was absolutely rife. Almost no one is talking about a U.S. recession at this point.
That’s not to suggest there aren’t serious risks. Domestically, there is risk on the political side. We still have 10 months before the election, so there’s lots of room for mischief-making by U.S. politicians.
Craig Wright, chief economist for RBC Financial Group, on Canada
We would expect the Canadian economy to grow by 2.5 per cent this year. That is going to feel very similar to what we saw in 2011.
That’s not terribly surprising. We’ve seen a decade of excess and usually that’s followed by a decade of stress and that’s what we’re in the midst of right now. The growth outlook will be characterized as uneven, uncertain and somewhat underwhelming. [More: 8 ways I gained financial freedom]
In Canada, the debt-to-income ratio is still creeping higher. Hopefully that will level off as we move forward.
Exports are holding up remarkably well given the strength in the Canadian dollar. As we go forward, look for imports to ease off as the domestic side of the Canadian economy slows down.
The sizeable support we saw [from Ottawa] through the fiscal stimulus phase is pulling away, so government will be moving to [being] a weight on economic growth from adding to it.
We expect the Bank of Canada eventually to start raising rates, but that’s a story for late this year. The overnight rate will still stay very low.
Avery Shenfeld, chief economist at CIBC World Markets, on financial markets
What does 2013 look like? My view is not a whole lot better than 2012.
We’re getting good news to start the year, but the bad news on Europe is still lurking. We’re going to hear recession numbers out of Europe. We’re going to see a lot of what we saw this year, which is rallies that last a week or two then are corrected.
At the end of the year, equity markets will probably be higher than they are now, because a fairly gloomy outlook has been priced in. But I don’t think this will be a banner year for stocks.
The Canadian dollar has drifted weaker over the course of the last year. Expectations for global growth drive commodity prices, and we expect to be in a slow-global-growth environment for the coming year. The dollar will probably move from parity to seven or eight cents weaker than parity at various points over the year. [More: How repaying my $20,000 debt set me free]
Oil will probably average about $90 (U.S.) a barrel.
Overall, what does this mean for investors? It’s a tough year to make money.
Craig Alexander, chief economist at TD Bank Financial Group on uncertainty
The real issue is that there is enormous uncertainty out there. The crystal balls are cracked and cloudy. There are big risks out there and they all have a political dimension to them.
Europe is going to be a long drawn-out, protracted affair. It will take Europe going up to the financial abyss before they blink and turn away, but, at the end of the day, you have to assume they will take the steps necessary to avoid a banking crisis that drives a global recession.
Another big political risk out there is Middle East politics. This is always a big driver of what happens to energy prices. We have increased stress around Iran and we still have the uncertainty around the fallout of the Arab spring.
You then have political risk in the United States. If political gridlock persists indefinitely in the United States, it will create enormous fiscal drag on the U.S. economy that will hit in 2013.
Finally, there’s political risk around the ability of policy-makers in the emerging markets to contain inflation and create a soft landing in their economies.
The most likely outcome is that we are going to muddle through the coming year.
The reality is that, in 2008, when the financial crisis hit and the recession ensued, given the magnitude of the imbalances that built up in the world economy, we were going to have a depression if policy-makers didn’t inject enormous fiscal and monetary stimulus. Now we have to go through an adjustment process. That process has been elongated and created its own set of challenges.
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