More Positive News on the Canadian Economy

It looks like we can expect interest rates to remain steady until next summer as the Canadian economy slowly moves forward in its recovery.

The article below is from Property Wire Canada:

The Canadian economy is well on its way to recovery, but has some distance to make up yet, according to a recently released outlook from the Canadian Chamber of Commerce.

According to the 2011 Economic Outlook report, the “Canadian economy has transitioned into a period of subdued growth.”

After showing strength in a rebound after the recession, Canada’s economy lost some of ground, expanding at a meagre 2.3 % annual rate in the Q2 of 2010 and one % in Q3.

“The Canadian economy is chugging along but not at full steam,” says Perrin Beatty, President and CEO of the Canadian Chamber of Commerce. “A number of factors are expected to constrain growth below 2.5 per cent in 2011,” says Beatty.
Contributing factors for this forecast include: Canadian households focussing on paying off existing debt, and fixing debt problems rather than acquiring new debt; ensuing cooling of consumer confidence; the cooling of a hot Canadian housing market; the ending of fiscal stimulus; slowing US demand, and the rising of the Canadian dollar.

Looking forward, there is anticipation that business investment, particularly in machinery and equipment (M&E), is the likely leader in economic growth in 2011-12.

“With strong headwinds buffeting the economy and competitive pressures remaining fierce, it is encouraging to see the increased push by Canadian companies to invest in productivity-enhancing goods,” says Beatty.

M&E  imports saw  a 13-year high in October, and a number of factors will help with increased capital investment going forward, including the strong Canadian dollar, the continuation of low borrowing costs, high corporate cash balances and the elimination of tariffs on a range of M&E.

“We believe Canada’s relatively strong fundamentals-an enviable fiscal position, a strong banking system, widening interest rate differentials and favourable commodity prices-will save the loonie from excessive downside pressures. These forces should hold the Canadian dollar near and slightly above parity in 2011 and 2012,” says Beatty.

The Canadian Chamber of Commerce believes that the Bank of Canada will not be active until the summer of 2011; they also feel that the overnight target rate will reach two % by the end of 2011 and three % by the end of 2012. This goes along with concerns about Global instability.