Boston, MA -- (SBWIRE) -- 02/17/2014 -- The ongoing theme for the Canadian economy is 'rebalancing'. The mix of growth will shift away from private consumption and toward net exports, as household balance sheets remain under pressure, and US demand picks up. Growth could well disappoint in 2014, however, and we are below consensus on the rate of economic expansion in both 2014 and 2015.
We are becoming somewhat concerned at the moribund recent performance of business investment, but expect an improvement in gross fixed capital formation going into 2014 and 2015, as the recovery in the US buoys corporate sentiment as well as external demand for Canadian exports going into 2014.
Among developed states, and in stark contrast to the neighbouring US, Canada has an enviable fiscal record. We see very limited risk of a Canadian fiscal crisis we see the federal budget balance returning to surplus by 2015-16.
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Major Forecast Changes
We have downgraded our 2014 real GDP growth forecast for Canada to 2.1% from 2.3%, and for 2015 to 2.3% from 2.5%.
Key Risks To Outlook
Downside Risks To Growth Forecast: Domestically, a hard landing for the housing market could push the Canadian economy into recession. Externally, a relapse in US growth would hit Canada's attempt at economic rebalancing particularly hard, as it would severely hurt demand for Canadian exports and damage corporate investment sentiment. A hard landing in China would cause a commodities collapse, further damaging Canadian terms of trade.
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