Canada’s top economists, strategists and portfolio managers predict modest growth for both Canada and the United States, with Canada lagging the U.S. in both economic activity and job creation over the next few years, according to a Towers Watson survey.
Global growth is expected to improve but remain relatively subdued, leading to continued low interest rates in most countries for at least another year. The survey also suggests that despite rising long-term interest rates, economic activity in Canada remains fragile and reliant on improvement in the United States and Europe and continuing strength in China.
For the near term, survey respondents expect Canadian GDP growth to remain around 2%, rising to 2.4% over the longer term. While the recent decline in the Canadian dollar may provide some welcome relief to exporters, however, the majority of survey respondents expect the Canadian dollar to appreciate to close to par over the long term.
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“With a lower Canadian dollar, there is hope that manufacturing businesses, and certainly the export sector of the economy, can contribute to reducing the unemployment rate in the next few years. That being said, recent announcements about industrial plant closures in Ontario would indicate that the cycle has not yet turned,” says Janet Rabovsky, director of investment consulting at Towers Watson’s Toronto office.
With inflation in check and the lower Canadian dollar, the Bank of Canada signalled a neutral stance on interest rates in 2013. Survey respondents expect the Bank of Canada’s overnight rate to increase from its current level of 1% to 2% in 2015 – 0.50% lower than last year’s forecast. While respondents expect short-term rates to remain relatively low over the next few years, they expect the ten-year government of Canada bond to rise to 3.8% by 2018.
Survey respondents are not overly bullish about equity market returns over any time period. The majority expect the S&P/TSX Composite Index to return between 6% and 10% over the short, mid and long term. The most surprising forecast is for emerging market equities, which the majority of survey respondents expect to return below 5% in 2014 and between 6% and 10% over the medium and longer term.