CIBC is predicting “very mediocre” growth for Canada next year, citing a weak world economy and an absence of key economic drivers at home.
The bank said Wednesday it now expects economic growth of only 1.7% in 2013–down from its previous forecast of 2%.
“Having earlier tapped fiscal stimulus and a housing boom to shelter the economy from sluggishness abroad, the country’s ability to set its own course is now much more limited,” Avery Shenfeld, the bank’s chief economist, said in a report.
“Escaping economic mediocrity will depend on the kindness of strangers, with exports and related capital spending critical to Canada’s fate in 2013-14.”
CIBC bases its somewhat bleak assessment on significant headwinds that continue to buffet the global economy.
“It’s too early to get the full benefits of policy stimulus in Asia, Europe is too stubborn to soften its fiscal drag enough and amplify ECB bond purchases and Washington is too wedded to getting going on fiscal tightening stateside, if not the full fiscal cliff,” Shenfeld said.
While Chinese GDP could show improvement towards an 8% pace as early as the end of this year, it is not likely to have much of an impact on other economies as Chinese imports are currently showing no growth at all on a year-over-year basis, he added.
Meanwhile, he said high household debt and moderate growth in real incomes will limit domestic consumption while governments are being hit by leaner than expected coffers due to downward revisions to nominal GDP. Governments, he noted, will be introducing further spending restraints or tax hikes for fiscal 2013.
However, Shenfeld does expect things to pick up in 2014, with economic growth in Canada hitting 2.5%, led by recovery south of the border and a strengthening Chinese economy.
Moving on to interest rates, Shenfeld believes they will hold steady in Canada through 2013, but that Bank of Canada governor Mark Carney‘s successor will nudge rates up 50 to 75 basis points in 2014. Carney is leaving Canada’s central bank to become the next governor of the Bank of England in July.