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Canada’s forecast looks grim as growth, jobs slow

OTTAWA — New private sector forecasts see Canada’s economy struggling to maintain momentum in the next two years, held back by weak job growth and vulnerable to both external and internal shocks.

Under this scenario, the CIBC says Canadians will likely be able to take advantage of historically low interest rates into 2014.

But the Bank of Canada need not be overly worried about households continuing to pile on debt as a result of generous loan conditions, it added to its latest economic report released Wednesday.

“After gorging at the table of plenty for years, Canadian consumer appetites may already be satiated,” CIBC economists write in their report, noting that credit growth continues to slow even with today’s low interest rates.

The two forecasts — from CIBC and Capital Economics — both project the Canadian economy will register the lowest annual growth rates since the recession in the next two years. CIBC says growth will average 2.1 per cent in both 2012 and 2013, whereas Capital Economics expects an even slower pace, at 2.0 per cent in 2012 and 1.5 per cent in 2013.


“This is not a good recovery,” said economist Benjamin Tal of CIBC. “Normally you would expect growth rates of four and five per cent in a recovery, but I don’t see anything that will lift the economy in any significant way.”


Tal notes that since the recovery began in the fall of 2009, and to some extent during the recession, the economy was sustained by a “couple of tricks” — super-low interest rates that spurred consumer spending and house buying, and government stimulus.

But the consumer is spent and won’t be lured by continuing low rates, and governments are pulling back, exerting a drag on gross domestic product where once they were stimulating growth.

Meanwhile, the global situation is worsening, restricting demand for Canadian exports.

Capital Economics’ David Madani concurs with most of the analysis, but sees the economy performing even worse and more vulnerable to reversals.

“The deepening euro crisis and the risk it poses to financial stability has policy-makers on edge, particularly at a time when they are already grappling with the household sector’s high debt levels and vulnerability to a housing correction,” he said in his report.

Even Canada’s ace in the hole — commodities it sells to the world — could be in store for a setback due to weaker economic growth in the United States and China, as well as Europe’s double-dip recession.

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