The Canadian Chamber of Commerce (CCC) is forecasting another good year for the Canadian economy.
In its 2003 Economic Outlook, the CCC predicts growth in real gross domestic product (GDP) of around 3.2 per cent, close to the estimated 3.3 per cent rate for 2002 and a big improvement over the 1.5 per cent growth rate recorded in 2001.
“We expect that the Canadian economy will continue to lead the G-7 economies in terms of growth in the coming year,” said Nancy Hughes Anthony, president and CEO of the CCC. “Along with strong business and consumer confidence, there are other indicators for good economic growth in 2003.”
The CCC expects that while consumer spending on durable goods will slow, expenditure in other areas, including services, will pick up most of the slack. It says a continued improvement in corporate profits and rising capacity utilization rates bodes well for stronger investment in machinery and equipment. Exports are expected to benefit from firmer economic growth in the United States.
The chamber expects the Bank of Canada to keep interest rates steady until the spring of 2003, with rates rising 125 basis points by the end of 2003. The projected widening in Canada-U.S. interest rate spreads will lend support to the Canadian dollar, the chamber says.
Hughes noted the forecast could be clouded by a delay in the U.S. economic recovery, possible military action against Iraq and lingering uncertainty around the cost of the Kyoto Protocol.
The CCC’s predictions are a bit rosier than those of the TD Quarterly Economic Forecast, released shortly before the chamber’s outlook.
TD economists said the Canadian economy is in the midst of a “balanced” recovery, but is not immune to the ill economic winds blowing in from the U.S. As a result, growth in Canada is likely to moderate to a two- to three-per-cent annualized clip over the next few quarters.
The TD forecast says the U.S. economy is likely to remain on a weak footing until the second half of 2003. The U.S. Federal Reserve will keep interest rates unchanged until August. However, with the Canadian economy operating close to full capacity, the Bank of Canada will be back to raising interest rates in June, the forecast predicts.
“Canada’s economy is in remarkably good shape,” said Don Drummond, senior vice-president and chief economist at TD Bank Financial Group. “Business investment is rising on the back of strong growth in corporate profits and consumer spending has been underpinned by the strongest job gains in almost 15 years.
“Given the sour global environment, it doesn’t get much better than this,” he said.
The TD forecast notes that it will not all be smooth sailing over the next few quarters, with Canada’s main trading partner in the doldrums.