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Posted April 26, 2013

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Economy

Steady-as-she-goes in the year ahead for Canada's economy

By Roslyn Kunin

VANCOUVER - Even though it has been said that where there are six economists there are seven opinions, we are often called upon to predict the future and sometimes we even get it right.

To hone our forecasting skills, the Association of Professional Economists of British Columbia has a contest every year to forecast the major variables of the Canadian economy. The economist with the most accurate forecast gets the coveted Crystal Ball Award. No bad jokes about economists having crystal balls – please. I have won this award twice and since I am often asked what is going to be happening in the economy, here is what I foresee for the Canadian economy for the current year. Look for these variables in March 2014 to see if I am right.

The first variable is the percentage change in gross domestic product (GDP), an indicator of the total output of good services in Canada. Last year, it rose at 1.8 per cent. This year, I predict it will grow slightly faster at 2.3 per cent, not quite as strongly as in 2010 and 2011, but significantly better than 2009 when our total output actually declined by 2.8 per cent. So slow steady growth. It won’t be a recession, but it won’t feel like a boom.

Slow growth means little upward pressure on prices and inflation should come in at 1.7 per cent, below the Bank of Canada’s target rate of 2 per cent, but very slightly higher than the 1.5 per cent increase in prices we experienced over the past year.

Economic growth and the unemployment rate tend to move in the opposite directions, but the job level does not change as quickly as it used to in response to changes in GDP. This trend is also evident in the United States, where years of steady growth since the last recession have not yet managed to push the unemployment rate down to acceptable levels. In Canada and elsewhere there is the additional problem of a serious mismatch of skills between the jobs that are available and the workers looking for work. As a result, I see little change in the unemployment rate, staying around 7.3 per cent in Canada this year.

Housing starts in Canada in a good year are well over 200,000. In a slow year. 2009, they dropped below 150,000. Last year, they had crept over the 200,000 mark again; but given uncertainty about where house prices and interest rates are going I see the number of housing starts being just under 200,000 this year at 199,000.

Given that many of our trading partners, especially in Asia, will be growing faster than we are; I see Canada netting $1.1 billion from our trade in goods this year. Trade has often been significantly better than that. However, last year we bought $12 billion more imports than we exported. This year, exports should exceed imports for a positive trade balance.

By now you have probably realized that I foresee a slow, steady, undramatic improvement in the Canadian economy. Things will be getting better, but you might not notice. But corporations will. They saw their profits fall by over 3 per cent last year. This year’s profits might not be great, but at least they will be moving in the right direction – up 4.7 per cent

Finally, two numbers that are of concern to many Canadians: interest rates and the dollar. For both of these, I am predicting little or no change. The bank prime rate, which has been at 3 per cent for the past three years, is unlikely to move and the Canadian dollar will most likely end the year not far from where it is now at 98.7 cents U.S.

Forecasting is difficult, a wag once said, especially when applied to the future. A year from now we may look at these numbers and laugh or cry. Major economic, political or other unforeseen and unforeseeable events can mean that all bets are off. But, right now, it looks like 2013 will be an ordinary year of steady as she goes.

Troy Media BC’s Business columnist Roslyn Kunin is a consulting economist and speaker and can be reached at www.rkunin.com.

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