Canada’s economy is expected to grow between 1.7%-2.0% this year, with risks skewed to the downside amid concerns regarding the housing market and domestic crude oil-price fundamentals.
That’s the forecast from Russell Investments latest Strategists’ Outlook and Barometer, which updates the firm’s Annual Outlook for 2013.
The report features in-depth analysis of key trends and indicators by Russell’s global team of investment strategists, whose capital markets insights are one of the tools used to help guide Russell’s multi-asset portfolios and services.
“A slowing housing market creates a reverse ‘wealth effect’ that could restrain household spending,” said Shailesh Kshatriya, associate director, client investment strategies at Russell Investments Canada, who authored the Canada Market Perspective section of the global report. “As well, market volatility related to issues such as the recent banking crisis in Cyprus will continue to cause anxiety for conservative investors.”
Kshatriya believes the weak domestic economy means the Bank of Canada is unlikely to raise interest rates for the rest of the year. Kshatriya expects the central bank’s target interest rate to remain at 1% until 2014.
On the other hand, Kshatriya believes the low rates and a slightly weaker Canadian dollar may encourage investment spending and could boost the domestic manufacturing sector. As well, he believes the ongoing U.S. economic recovery could be beneficial for Canada.
According to the Strategists’ Outlook and Barometer, the outlook for the U.S. is positive despite continued market risks.
“Even with modest growth expectations for corporate earnings, current stock-price multiples are quite high compared to historical measures,” said Mike Dueker, chief economist for Russell Investments. “We do not expect U.S. growth to set any records, but we do believe the market could advance if four major fears are addressed: interest rates and the continued action of the Federal Reserve in maintaining liquidity; avoidance of major negative events (such as in Europe and the fiscal cliff); outstanding recession fears; and concerns about excess government debt.”
While Russell’s team of global strategists forecast the overall 12-month view of the U.S. equities market as positive, with projections of between 2-2.5% Gross Domestic Product (GDP) growth, gains are expected to be tempered by an ongoing risk fluctuating environment.
The strategists believe current optimism in U.S. and global markets — driven by the U.S. housing recovery, a cyclical rebound in China and Japan’s favorable policy initiatives — will continue to be offset by ongoing volatility in the Euro zone, U.S. fiscal tightening and moderate economic growth.
In terms of global emerging markets, Russell’s strategists believe that despite underperforming developed markets during the recent rally, emerging markets are undervalued and demonstrate potential for double digit earnings per share growth in 2013.
The complete report is available here: Strategists’ Outlook and Barometer.