Canada can expect moderate growth in 2013, a prominent economist told the local Chamber of Commerce Tuesday.
Canada can expect moderate growth in 2013, a prominent economist told the local Chamber of Commerce Tuesday.
After navigating the 2008 recession, Canada’s economy had been impacted negatively by changes in other global economies, said Craig Alexander, chief economist for TD Bank Financial Group.
Europe is still going through dramatic changes. The countries that find themselves in dire straits would sooner or later require financial support from stronger economies such as Germany, he said.
While this creates a fear of losing sovereignty, the financial crisis would eventually force these countries into accepting aid, he added.
“This means the financial crisis in Europe has to continue because it’s the financial crisis that is pushing the politicians, that is pushing the policies, that get Europe out of the crisis,” he said.
He said Europe will eventually move toward a resolution but it will take time. The positive message for Canada is that the odds of a major banking crisis diminished over the past 12 months.
Another reason for slower economic growth came from emerging eastern markets such as China.
Following the recession, China’s economy grew by more than 10 per cent, which let to inflation. In response, the country put policies in place to slow its growth and brought economic growth down to 7.8 per cent in 2011.
“Unfortunately, at the same time of slowing down the domestic economy, Europe went into recession,” he said, adding that Europe is one of the biggest importers for Chinese products.
“This created a situation where Europe’s recession weakened emerging export markets at the same time that they slowed their markets.”
He expects economic growth will return eventually and average about eight per cent, which will boost Canadian commodity prices.
On Canada’s southern border, the U.S. market was still recovering from its crisis.
In 2013, he said the American economy would have to go through another debate on raising its debt ceiling. This will initially lead to renewed fears in the financial markets before settling into a slow economic growth.
He added that U.S. consumers were beginning to borrow again and to invest in low interest rates, which has a positive effect on the economy.
Additionally, the housing market was stabilizing. This influences business and consumer confidence and improves economic growth, he said.
“When housing is doing better, you build more homes, and when housing prices are rising people feel more confident and are more willing to spend,” he said.
Alexander expects two per cent growth in the United States due to the fiscal cliff but said that 2013 would lead into a better 2014.
With the overall global situation improving, Alexander said Canada could prepare for moderate growth in 2013.
The country experienced a milder recession and a stronger recovery. Unemployment rates were still higher than before the recession but on a twenty-year average.
The primary areas of growth in the past were consumer spending, real estate and the government. But Canada should now focus on exports and business investment, he said. “As the global risks play out the scope for business investment is growing.”
In 2013, he said the real estate market will be flat, including the local market, and consumers will spend moderately without taking on as much debt.
Governments will be looking at fiscal restraints instead of adding to growth the way they used to.
While there are existing worries that Canadians were taking on too much debt, Alexander said the debt-to-income ratio was not as bad as expected and the economy would not be at risk unless Canada saw a sharp increase in unemployment or interest rates.
He added the Bank of Canada had said interest rates would not be raised until 2015.
“I don’t think we will see sharp increases in unemployment unless something goes wrong on the international front and as I said, the trend is toward improvement,” he said.
While housing markets in Vancouver and Toronto were due for a correction, he said the rest of the country was not showing similar problems, despite negative publicity in the news. Until interest rates go up, he expects the market will cool down further though.
If Canada’s economy was to grow, it had to invest in its energy markets and create pipeline capacities and exports, he said, and strengthen business investment.
Alberta and Saskatchewan will remain leaders in the Canadian economy, he said.
