Boston, MA -- (ReleaseWire) -- 05/23/2014 -- Economic growth in Canada will gradually accelerate over the next few years, helped by a continued expansion in private consumption and a return to positive growth in fixed investment. Our growth outlook, however, remains below consensus expectations, our reflecting concerns about high household leverage, declining commodity prices, and recent weakness in US economic data.
Exchange rate depreciation and stronger US demand will see Canada's trade in goods balance move from deficit into surplus by 2016, which will continue to narrow the current account deficit over the coming years. Despite recent depreciation, we believe that the Canadian dollar remains fundamentally overvalued, and continued weakness in 2014 will help to revive manufactured goods exports to a strengthening US economy.
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Monetary policy will remain unchanged in Canada until 2015, when the Bank of Canada will commence a gradual tightening cycle, as exchange rate weakness and rising industrial capacity utilisation see inflation move towards the central bank's 2% target. In the near term, however, an interest rate cut is not out of the question should economic data show renewed weakness.
Major Forecast Changes
We have not made any major forecast changes this quarter.
Key Risks To Outlook
Downside Risks To Growth Forecast: Exogenous factors, such as declining commodity prices and an erratic economic recovery in the US, could have more profound effects on our real GDP growth projections in the near term. However, we feel that our belowconsensus forecasts currently reflect our more cautious outlook in this respect.
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