Canadian Economic Outlook: G7 Leader During Recovery Faces Challenges

MAPI predicts manufacturing growth of 2% in 2012.

As the only G7 member that has fully recouped its GDP and employment losses sustained during the downturn, Canada has led the economic recovery among industrialized nations. However, with commodity prices topping out and dimming prospects for global growth, Canada will be hard-pressed to maintain its superior economic performance, according to an annual report from Manufacturers Alliance for Productivity and Innovation (MAPI).

Jeremy A. Leonard, MAPI economic consultant and report author, notes that annualized GDP growth was a higher-than-expected 3.5% in the third quarter of 2011, but weakening labor markets and export demand will reduce quarterly annualized growth to the 2% range in 2012.

"Real GDP growth in Canada is expected to be 2.2% in 2011 before decelerating to 1.9% in 2012, with slowing growth in domestic demand being the primary issue," Leonard said. "In addition, if the prospect of a significant European double-dip recession materializes because of an inability to contain the sovereign debt crisis, the ripple effects on both the United States and Canada will be considerable."

Canada's manufacturing sector faces severe cyclical and structural problems, and growth will likely be little more than 2% in 2012. MAPI expects the manufacturing recovery will continue to be uneven, with stronger growth in two key durable goods industries that feed into capital equipment (machinery, anticipated to grow 7.6% in 2012 and 7.4% in 2013, and fabricated metals, with 5.8% growth in 2012 and a 6.3% advance in 2013) and one nondurable goods industry (chemicals, with 5.8% growth in 2012 and a 7.5% increase in 2013).

In a forecast of selected economic indicators for 2012, pre-tax corporate profits are expected to grow by 5%, exports to increase by 4%, and imports to increase by 3.5%. Consumer spending is anticipated to grow by 2%, and disposable income should increase by 3.6% in 2012.

The labor market appears to be weakening, as the national unemployment rate increased from 7.1% in October 2011 to 7.% in November.

"Commodity prices are likely to continue to ease somewhat into 2012, adversely affecting terms of trade and sapping domestic purchasing power," Leonard said.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish