Modest household spending and fiscal restraint by every level of government will hold Canada’s GDP growth to 2.3 per cent in 2014, according to a forecast from the Conference Board of Canada.
While hardly robust, 2.3 per cent growth would be an improvement on last year’s GDP growth, which the Bank of Canada estimates at 1.6 per cent.
The bright spots for the economy in 2014 will be strong exports — a result of the lower Canadian dollar — and increased business spending, economist Pedro Antunes says in his winter outlook.
"Export and business investment growth were subpar in 2013. But with growing demand from the U.S. and a weaker Canadian dollar, export volumes and investment will see stronger growth and, as a result, overall economic activity will pick up," Antunes said.
The Bank of Canada’s surprise change to its policy stance, saying rates may have to drop to beat back deflation, helped nudge down the value of the Canadian dollar, Antunes said, but he predicts the loonie will stay in the 90-cent US range, low enough to bolster exports.
In 2014, consumers will face higher financing costs because of pressure on interest rates and could cut their spending on big ticket items such as cars and home furnishings, he said.
There has been only modest growth in labour income, so the Conference Board predicts household spending will grow by about 2.3 per cent this year.
The public sector is expected to contribute little to economic growth because of fiscal restraint at the federal, provincial and municipal levels. Antunes predicts real government spending on public services and infrastructure will increase by only 0.5 per cent this year, contributing little to economic growth.
However, business spending will pick up as companies begin spending again on machinery and equipment. The Conference Board predicts business investment will rise by 3.1 per cent this year, compared to 1.1 per cent in 2013.
The resource sector remains surprisingly resilient and should continue to contribute to economic growth.
That trend will be supported by the growth of the U.S. economy, which will result in an 3.4 per cent expansion of exports from Canada.
Along with exports, business investment is expected to pick up this year and in 2015, bolstered by spending in machinery and equipment. Following growth of just 1.1 per cent in 2013, business investment is projected to increase by 3.1 per cent this year.