Canadian economists see U.S. rebound helping Canada in 2013

Fri Jan 11, 2013 2:22pm EST
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By Alastair Sharp

TORONTO (Reuters) - A U.S. housing recovery and a broader global rebound from the second half of this year will likely prop up Canada's sluggish domestic economy, economists at Canada's largest banks said on Friday in cautiously optimistic forecasts.

The economists admitted they were troubled by signs of a slowdown in Canadian housing and by a currency widely considered overvalued. But the consensus was for gradual economic improvement as the year goes on.

"2013 is a year where the pendulum is likely to swing back towards a stronger global economy, but gradually over the course of the year, gaining momentum as we head into 2014," said Craig Alexander, chief economist at Toronto-Dominion Bank.

Perhaps surprisingly, given the current focus on U.S. fiscal brinkmanship and soft economic data, the economists mostly pointed to the situation in the United States as the source of most Canadian growth.

"Up until this point it may have seemed like the U.S. recovery has had all the vim and vigor of a slug waking up after a five-year nap, but we think that will change in 2013," said Doug Porter, deputy chief economist at BMO Capital Markets.

He expects the U.S. economy will grow faster than the Canadian one as it recovers from years of subdued activity, with a rebounding housing sector leading the charge.

"The housing recovery in the U.S. is real, it's broadening, and we think it will be a very important contributor to the U.S. economy throughout 2013 and 2014," Porter said, forecasting 2.5 percent U.S. growth and 2 percent for Canada.

Royal Bank of Canada chief economist Craig Wright expects the Canadian housing market to cool but not collapse and says North American companies will start spending hoarded cash as the economic outlook clears.   Continued...