Canada To Get Boost From U.S. Growth Surge In 2013, Top Economists Predict

12 Jan 2013

Economists predict a resurgent U.S. economy will be a growth leader in the developed world this year, allowing Canada to benefit by riding its coattails.

That was the consensus at the Economic Club of Canada’s 2013 outlook forum, held in Toronto Friday and attended by some of Canada’s top economists.

“The real strongest area of advanced economic growth this year will likely be in North America,” said Craig Alexander, senior vice-president and chief economist at Toronto-Dominion Bank. “People could be underestimating the growth we could see in the U.S.”

The six economists who took part in the forum all agreed that U.S. economic growth would likely amount to about 2% this year. And while Canada has tended to outperform the United States on the economic front in the past few years, the economists were much more bullish on the U.S.

“We’ve begun to see a role reversal between the Canadian and the U.S. economies. Part of it is there is a lot of headroom for the U.S. to catch up,” said Doug Porter, deputy chief economist at BMO Capital Markets.

Mr. Porter forecast the U.S. economy would grow by 2.5% this year, compared with just 2% for Canada. He singled out the housing recovery in the U.S. as the most important contributor to the U.S. expansion, a stark comparison with Canada, where housing is expected to cool this year.

Mr. Alexander said Canada’s economy will be “in transition” this year. He noted that while housing and debt accumulation had fuelled GDP expansion in recent years, Canada will now have to improve exports as households cut back on borrowing and the housing market slows .

Canada’s economy has certainly been losing steam during the past few months. Growth in October was just 0.1%, after a flat September and a decline of 0.1% in August.

The economists agreed that while Canada may lag the U.S. in economic growth, it will certainly benefit from a resurgent U.S., especially when it came to exports. The U.S. continues to be the largest destination for Canadian exports, accounting for almost 80% of goods shipped outside of the border.

“For Canada, it’s not a bad export environment,” Mr. Wright said. “So we are seeing export prospects improving and we continue to think they will pick up.”

Naturally, Canada’s housing sector was a much discussed topic at the forum. Craig Wright, chief economist at Royal Bank of Canada, said Canada’s housing market was “cooling” rather than “collapsing.”

“I don’t think we’ll see a repeat of the U.S. housing crisis here,” he said.

But Avery Shenfeld, chief economist at CIBC World Markets, said Canada would still suffer “significant” economic consequences as the housing market cools this year.

“I don’t want to say we’ll get off scott-free, we have gotten a lot of our GDP from housing,” he said.

He said given that housing in Canada is about 4% of gross domestic product, given a slowdown, about half a percent could be knocked off growth this year.

“It’s not trivial,” he said. “If we have an economy running at 2%, now it’s half a per cent less, it’s significant.”

Source: http://business.financialpost.com/2013/01/11/canada-to-get-boost-from-u-s-growth-surge-in-2013-top-economists-predict/