TORONTO/BANGALORE (Reuters) - A pickup in exports will foster stronger economic growth in Canada next year, a Reuters poll found, but many forecasters in the survey expressed concerns over the risks of a housing market correction.
A weaker U.S. recovery or an oil price shock, which were listed in the poll as some of the risks to global economic growth over the coming year, could also weigh on Canada’s economic expansion.
Canada’s economy will grow 2.3 percent this year, before picking up to 2.5 percent in 2015, according to the median consensus of 32 economists surveyed over the past week.
Those predictions are similar to the previous poll in July and slightly stronger than the Bank of Canada’s estimates.
Falling oil prices in the past two weeks have driven an exit from Canadian stocks - its benchmark TSX equity index .GSPTSE fell to an eight-month low of 13,869.88 on Wednesday.
Ten of 13 forecasters who responded to the question said they were confident the recent pickup in exports will give a sustainable boost to the economy, something policymakers have long been hoping for.
An acceleration in the U.S. recovery is expected to be the driving force as exporters reap the benefits of better demand and a weaker Canadian dollar.
A sister Reuters poll showed the U.S. economy will grow at a slightly better rate this year than previously thought. [ECILT/US]
“Whatever we make, hopefully they’ll demand more of it and that’s where we get that strength for Canada,” said Benjamin Reitzes, senior economist at BMO Capital Markets in Toronto.
The Canadian dollar has dropped around 2 percent since last Monday as commodity prices sank. It was trading around $1.1328 on Thursday and strategists in the latest Reuters FX poll expect it to be at $1.14 in 12 months. [CAD/POLL]
Exporters have struggled to cope with weak markets, increasing competition and a stronger domestic currency since the 2008 recession.
But Canadian exports rose to a record high in July, prompting some forecasters to suggest they had turned a corner.
However, not all economists were as optimistic.
“Exports are likely to improve only gradually. The strength of this recovery will be unspectacular,” said David Madani, Canada economist at Capital Economics.
To make matters worse, all but two of 13 economists who answered an extra question said they had some level of worry that house prices in Canada, after rising sharply, were in for a steep fall.
That chimes with an increasing number of property analysts who said in a Reuters survey conducted in August that chances of a steep fall in prices have increased in the past year. [CA/HOMES]
Even though the average home price has doubled in 11 years, Canada has so far avoided a U.S.-style housing market crash and policymakers have pointed to the differences between the two markets, particularly lending requirements.
But consumer spending, one of the reasons why Canada’s economy initially recovered more quickly from the financial crisis than the United States’, could falter as households on average hold debt worth over 1.5 times their income.
That makes the task more difficult for policymakers who have to grapple with how to raise interest rates without derailing the recovery.
“The run-up in household debt during the last several years has left Canadian consumers more vulnerable to higher interest rate expenses as the Bank of Canada hikes rates than they were in previous economic cycles,” said Bill Adams, senior economist at PNC Financial Services Group.
The central bank is unlikely to raise rates until the second half of next year, potentially after the U.S. Federal Reserve has made its expected move away from ultra-low rates.
And inflation is expected to stay just below the Bank of Canada’s target, averaging 1.9 percent in 2015, the poll showed, giving the central bank leeway to remain on the sidelines.
That comes against the backdrop of dim growth prospects for the global economy, both in Reuters polls and according to the International Monetary Fund. [ECILT/WRAP]
Should those predictions prove to be true and pressure the U.S. recovery, that will, in turn, impact the Canadian economy, poll respondents said.
Polling by Anu Bararia in Bangalore; Additional reporting by Ashrith Rao Doddi; Editing by Ross Finley and Alden Bentley