Canada may surprise to the upside in 2015.
Both banks and analysts are optimistic about the housing, labour and consumer markets, which is a marked improvement over last year. At the end of 2013, the housing and consumer sectors weighed heavily on the economy.
Also, despite this year’s slumping oil prices, exports are expected to outperform going forward. Outside of resource and energy commodities, analysts suggest demand will spike for autos, chemicals, aircrafts, and industrial and electronic machinery.
In fact, Export Development Canada (EDC) forecasts export volumes will be healthy. EDC chief economist Peter Hall recently told Canadian Press that the agency has “upgraded its outlook, and forecasts the value of exports will rise 10% this year, [and] 6% in 2015.
He adds, “Stripping out the impact of lower [commodity] prices, the pace of volume growth [for 2015] is expected to increase to 5%, and stay at that level for several years.” On the upside, EDC expects energy prices will bottom out in 2016 and 2017, and then rise modestly for oil, gas and base metals.
In a December release, RBC Economics chief economist Craig Wright toed the same line. He said, “The decline in oil prices, and any weakening of investment in the oil and gas industry, will be offset by increased demand for Canada’s non-energy exports.
“On a national level, the net impact of lower oil prices will be negligible in terms of real GDP growth,” which the bank predicts will be 2.5% this year, 2.7% in 2015 and 2.1% in 2016.
As well, he notes, “a firming in economic growth [could] convince the Bank of Canada to reduce the amount of policy stimulus by raising the overnight rate in the middle of .”
The BoC isn’t as optimistic. During a speech in November, Governor Stephen Poloz questioned the sustainability of current export growth, and the strength of the job market. As such, the central bank may stand pat on rates longer than anticipated.
But one thing’s for sure: going into 2015, investors will keep a close eye on the BoC. In a recent report, Russell Investments suggests that although the economy may be healthier than the BoC claims, the central bank remains in a precarious position. So it needs to time its next move carefully, given higher interest rates will impact business investment, those who have debts, and overall economic performance.
For more on how Canadian and global economies will fare next year, read: