Pension plan investors in Canada can expect a slow start to the year but a strong finish, according to the country’s economists. They put in their two cents at the annual economic outlook presented by the Economic Club of Canada on Friday morning. Here’s a look at the effects in Canada, the U.S. and around the world.
Emerging markets
The outlook is good for emerging markets this year and into the future, predicted Warren Jestin, chief economist with Scotiabank.
“As emerging markets continue to outperform the developed markets, they will become an even more powerful force in driving the financial markets, both good and bad markets, in this decade,” said Jestin.
Brazil, Mexico, Russia and Thailand will likely see 3.5% to 4% growth; India (5% to 6%): and China (8%), according to Jestin.
U.S.
The U.S. has the greatest chance for improvement in the economy, said Doug Porter, deputy chief economist with BMO Capital Markets.
The U.S. economy will come back, as there’s “a lot more pent-up demand in the U.S. than in Canada,” he said.
Leading the way to the U.S. economic improvement will be the housing sector. It’s broadening, said Porter, and will be a positive contributor to the economy in 2013 and into 2014.
Porter predicts a 2.5% growth, which will likely outpace Canada.
Canada
Craig Wright, chief economist RBC Financial Group, predicts that global growth will see similar improvements to the emerging markets, citing 3.5% to 4% average growth.
The U.S. is seeing growth in the housing and auto sectors, and commodity prices remain constant. This is positive for Canada, as these are the sectors Canada exports to.
More job creation (100,000 new jobs over the last months) and lower unemployment (7.1% in December, according to Statistics Canada, the lowest in four years), as well as a decline in the rate of household debt will help to support consumer spending.
Although many see the Canadian dollar as overvalued, Wright said that it will continue to be strong.
Europe
Macroeconomic factors will be difficult in Europe in 2013. “Expect the recession [in Europe] to continue, but more in the periphery than in the core,” said Julia Coronado, chief economist with BNP Paribas.
Growth across Europe is expected in the second half of the year, but it will be a slow turnaround. One uncertainty heading into 2013 is Spain’s budget announcement, which is to come in February. If the country’s credit rating is downgraded, that will set off a ripple effect in the region.
Financial markets
Avery Shenfeld, chief economist CIBC World Markets, added some rhythm to his outlook, comparing asset class performance predictions to song lyrics.
For equities, he said the world markets are going to “party like it’s 1999.” Back in 1998, equities dipped. At the beginning of ’99, they were flat but soon strengthened in the second half of the year. “That’s what will be in store for the U.S. and Canada in 2013,” said Shenfeld.
He said the second half of 2013 is expected to be strong and will see a shift in outperformers toward more growth-oriented equities.
For bonds, Shenfeld referenced the Michael Jackson song “Ben”—particularly the first two lines: “Ben, the two of us need look no more. We both found what we were looking for.”
The Ben in this instance is Ben Bernanke, said Shenfeld, who’s looking for some sign that the outlook for the labour market is improving. Shenfeld said there will be a substantial improvement in the labour market, likely in the latter half of 2013.
He expects the 10-year bond rates to be above 2.5%—both in Canada and the U.S.
Summing it all up, Craig Alexander, chief economist with TD Bank Financial Group, said that 2013 is a year of transition.
The pendulum will swing back, he said, to a stronger global economy, but this will be over the course of the year.
“Emerging markets will be the lion’s share of global economic growth.” The advanced world is still fragile, he continued, but the strongest areas will be North America—particularly the U.S.