CIBC World Markets has cut its 2015 Canadian growth forecast to 1.4%. Weak commodity prices and slowing emerging market economies have not provided the expected lift.

“We’re slashing our 2015 growth forecast for Canada by more than a quarter point to only 1.4%, stung by a downside miss in Q1, and an end-of-quarter picture that depressed the Q2 outlook,” says Avery Shenfeld, chief economist with CIBC.

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While he expects commodity prices to rebound this year, slowing global growth will keep them well below previous peaks. The new CIBC forecast has dropped global growth by nearly a half point to 2.9%, the softest since the recession. “That owes to a divergence between an improving developed world and a deterioration in emerging markets.”

“Political risks in Greece — and Spain later this year — won’t be enough to take the Eurozone off a clear recovery path, with lots of headroom for non-inflationary growth. But a downshifting in China and recessions in Russia and Brazil are contributing to a much less impressive overall pace.”

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While he expects current stimulus efforts to boost growth in emerging market economies next year, secular forces, including slower trend growth in an aging west, will limit the bounce to 3.6% in 2016, well below the nearly 5% global growth pace seen in the five years leading up to the last recession.

CIBC’s outlook for America is more positive. “Unless America’s business leaders are totally out of touch, their brisk hiring points to solid demand growth ahead.” With much more pent-up demand in its less-indebted household sector, America will grow faster than Canada this year.

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“Since Canada outpaced the U.S. during the recession and early recovery, divergence in growth has already generated a convergence in economic slack, necessitating a parallel convergence in short-term rates. The Fed will carry through on Yellen’s clear intention to hike rates this year. But a soft Q1, and tame core personal consumption expenditures, will see the Fed wait until September to pull the trigger, needing more assurance that growth has rebounded.

“Slower trend growth and reduced incentives for capital spending at any given interest rate will see central banks and bond markets settle at what, by historical standards, will still be unusually low yields. That’s just the next chapter in a story dating back to the 1980s, in which successive cycles have required lower average real interest rates to reach and stay at full employment.”

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