The domestic economy is forecast to expand between 2% and 2.3% this year—and the loonie will likely stop declining.
This is according to Russell Investments’ latest Strategists’ 2014 Global Outlook – Second Quarter Update.
“While the Canadian economy is currently trending below our forecast level, growth should accelerate as the year progresses as a result of our lower Canadian dollar boosting exports and an improving U.S. economy,” says Shailesh Kshatriya, associate director of client investment strategies with Russell Investments Canada and one of the report’s authors. “However, we remain concerned about employment trends.”
Declining job growth rates, along with high household debt, could suppress consumption and growth this year, Kshatriya explains.
At the same time, he notes, a lower loonie relative to the U.S. dollar may boost exports, but it makes new purchases to improve business efficiencies more expensive if those purchases are made outside of Canada. Says Kshatriya: “Meaningful business investment has largely been absent over the last several years when our dollar was hovering at parity with the U.S. The question is, Will business feel confident enough in domestic and global growth trends to spend now that our dollar has declined by roughly 10%?”
The report predicts that the Canadian dollar will stop declining for the time being and forecasts an exchange rate of roughly $0.89 to $0.94 for the balance of this year.
On the housing market front, the report predicts a period of stagnation rather than outright meltdown—until the Bank of Canada introduces rate increases, which are not expected for at least a year.
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