Canadian economic growth is set to slow through the next couple of years, according to a new report from UBS Securities Canada Inc.

UBS unveiled updated economic forecasts for 2012 Monday. The firm sees global GDP of 4.1% his year, dipping to 3.7% in 2011, and inching up to 3.8% in 2012.

“The overall message is another year of trend-like growth, with the developed economies characterized by slow and uneven recoveries, which offsets superior growth in much of the emerging complex,” it says, adding that, “… the deleveraging process is barely underway, and so portends a lengthy period of subdued domestic demand.”

“The Canadian economy, despite its solid structural underpinnings, cannot escape the U.S. and global undertow,” UBS says.

“That backdrop, coupled with domestic demand that has far less ground to recover before reaching sustainable levels, as well as the natural expiration of fiscal stimulus in 2011 and 2012, actually leads to a deceleration in growth.” As a result, UBS expects 3.1% growth in 2010, sliding to 2.8% in 2011, and 2.6% in 2012.

This subdued outlook also has UBS expecting monetary policy to remain loose for an extended period. It forecasts the Bank Rate to be 2.00% and 2.50% at the end of 2011 and 2012, respectively. As for the Canadian dollar, UBS sees the loonie at US$1.05 at end 2011 and 2012.

In a separate report, UBS observes that the outlook for the Canadian stock market may be a bit brighter, at least over the next six months. “… the TSX has emerged from the treacherous June to October period with a solid 7.8% gain,” it says, which it notes is the index’s ninth best performance in the last 55 years. “This strength is in contrast to typical summer doldrums, as the TSX has posted an average loss of 1.2% (median of -0.3%) with a 50/50 distribution of up/down occurrences since 1956,” UBS says.

Moreover, it notes that this may signal even stronger than usual November-May gains. “When the TSX has had a strong June-October period (defined as >5%) the rise in the subsequent November-May period has been 10.3% (median=10.9%) compared to 8.4% (9.6% median) in all years.”

IE