Canada’s economy is stuck in a soft patch this year. Fatigued households and debt-laden governments have recently been shifting their attention to restraint. Meanwhile, a weak global environment and an elevated exchange rate are weighing on the export sector. In addition, the housing market correction appears to be under way, driven by a sharp downturn in Vancouver. We expect the slowdown will become more broad based following a fourth round of mortgage insurance regulation tightening by the federal government in July. The export and investment outlook is anticipated to improve heading into next year along with a strengthening global backdrop. In addition to brighter trade prospects, improved business balance sheets and an increased need to become more competitive are likely to encourage businesses to boost capital spending. Overall, economic growth and job creation will remain sub-par in the short run, before picking up in early 2013. After advancing by 1.8% in 2012, the pace of Canadian real GDP growth will likely head back a bit above 2% in 2013 and 2014. With the Canadian economy growing at what is believed to be its cruising speed limit of close to 2%, even TD Economics’ relatively soft near-term economic forecast is consistent with gradual rate hikes over the next couple of years.
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