Expect bumps in economy, analysts warn

Sunny 2014 outlook changing in Canada

OTTAWA — It may not be smooth sailing after all for the Canadian economy.

Many positive outlooks for growth in 2014 have been buoyed by a stronger-thanexpected performance in the third quarter of last year — along with a pickup in the global economy overall — but some analysts are sounding a more pessimistic tone.

“The consensus view that economic growth will accelerate this year is misplaced,” say economists at Capital Economics.

“While exports and business investment should improve modestly, we anticipate this will be more than offset by weaker housing construction, triggered by a pullback in the overbuilt condo market, and more cautious household consumption growth,” the Toronto-based independent global research group said in a report Friday.

That scenario goes against the grain of many forecasters, who have pencilled in growth of up to 2.6 per cent on an annualized basis in the final quarter of 2013, following an impressive 2.7 per cent showing in the previous three months.

The optimistic outlook for the Canadian economy followed back-to-back gains of 0.3 per cent in September and October, with momentum likely to spill over into November and December.

The long-anticipated resurgence in the United States now appears on track, meaning Canada should benefit through increased exports with its largest trading partner. The Bank of Canada sees expansion for all 2013 coming in at 1.6 per cent, following growth of 1.7 per cent in 2012. It’s forecasting a 2.3 per cent advance for 2014.

“Canada’s economy has also looked a touch more resilient lately,” said economist Peter Buchanan at CIBC World Markets.

“Although a downshifting housing recovery will keep performance from matching the U.S., faster growth there will lend support, encouraging the Bank of Canada’s hoped-for rotation from consumers and housing to trade and investment.”

Not necessarily, say Capital economists Amna Asaf and David Madani.

In fact, they are predicting much weaker growth in Canada this year, despite the upturn in the U.S. and elsewhere.

“Our view stands in contrast to the more rosy consensus forecast that GDP growth will accelerate to 2.3 per cent in 2014,” they said in their report, predicting a much slower 1.5 per cent pace this year.

“With U.S. economic growth strengthening, Europe emerging from recession and emerging Asia (economies) showing signs of recovery, we certainly expect Canada’s exporters to fare better this year,” they wrote. “But the growing gap between non-commodity exports and U.S. economic activity is bothersome, convincing us that a full export recovery will take much longer than normal.”