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Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.

 

Canada Lowers Growth Forecast

Tuesday, October 30, 2012 > 11:26:18
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Canada Lowers Growth Forecast
(Wall Street Journal – Alistair Macdonald & Paul Vieira)


The Canadian government cut its economic-growth forecast, citing weakness in the global economy and lower commodity prices, underscoring the country's dependence on resources as other economic headwinds build.


Canada outperformed its peers throughout the financial crisis and the subsequent recovery, on the back of its healthy banks and its resource riches. But recent weakness in oil markets and many metals prices are beginning to hurt Canada at a time when it faces other challenges, including overleveraged consumers and frothy property markets that in some cases are starting to deflate.


"In particular, Canada has been affected by volatile and lower commodity prices, which are dampening government revenue growth," Finance Minister Jim Flaherty said. "This will have an impact on the fiscal outlook."


Mr. Flaherty said the 2012 growth forecast would remain intact at 2.1% for real gross domestic product, but that the economy would expand only 2% in 2013, versus previous expectations for a 2.4% gain.


As far as nominal GDP, which measures the size of the tax base and drives government revenue, growth is now expected to come in at just 3.4% this year, down from 4%. That was previously reduced by the government from a 4.6% forecast in the government's original budget early this year. Expected nominal GDP growth for 2013 was downgraded to 4% from a previous 4.4% call.
The government's revised projections emerged from a survey of forecasts from private-sector analysts. This drives the Canadian government's budget planning. Mr. Flaherty met with the economists earlier Monday to review their outlook.


Commodity prices are still relatively high, economists point out. Mr. Flaherty also said that despite the near-term downward revisions, there were some encouraging signs for economic prospects, noting in particular that the U.S. housing market – which can significantly contribute to Canada's giant lumber and forestry industries – is "finally" showing some signs of life.


Still, as in other commodity-rich countries, such as Australia, commodity-price weakness is now making its mark. As commodity prices fall, corporate profits are hit, which in turn is hitting tax revenues and tempering a decade-long boom in capital expenditure by this sector.


According to Statistics Canada, profits in the Canadian oil and gas industry fell 31% to 2.7 billion Canadian dollars in the second quarter from the previous three months. (The U.S. and Canadian dollars trade roughly on par with one another.) Some of Canada's largest resources companies have announced hundreds of millions of dollars' worth of cuts to their budgets as they factor in lower resource prices. That includes heavyweights such as fertilizer producer Potash Corp. of Saskatchewan Inc. and oil and gas producers Canadian Natural Resources Ltd. and Talisman Energy Inc.


In one sign of how lower prices are taking a toll, around 42% of the oil and gas drilling rigs in western Canada are currently in operation. That has fallen to as low as 18% this year, and is down from around 61% at the same time last year, according to the Canadian Association of Oilwell Drilling Contractors.


"I am getting a bit more nervous about the outlook for commodities prices and so more nervous about the economy here," said David Madani, Canada economist at Capital Economics in Toronto.


The oil-rich province of Alberta announced in August that its budget deficit for the current fiscal year could swell threefold to as much as C$3 billion from previous estimates amid weakening energy prices.

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