Canadian economic growth to improve but remain sluggish in 2013: CIBC
Business investment waiting for global growth to spur demand for Canadian
TORONTO, March 4, 2013 /CNW/ - While Canada's economy limped to a close last
year, it is not a sign of worse things to come in 2013 - although growth will
continue to be lacklustre for some time, finds a new report from CIBC World
"Any time growth slows to a crawl, one has to worry that it wouldn't take much
to push the economy over the edge," says Avery Shenfeld, chief economist at
CIBC. "Based on admittedly slim evidence, there are reasons to believe that Q1
growth will be better."
He points out that while employment dropped in January, hours worked are up.
He also notes that auto sales look like they've rebounded - generally a signal
of consumer confidence - and that the resolution of energy sector disruptions
has resulted in an increase in oil exports to the United States through
"So it looks like, in terms of quarterly GDP, Q4 could end up being the storm
before the calm, with an improved pace ahead," says Mr. Shenfeld.
However, he warns that challenges domestically and globally will result in
only tepid improvement. CIBC's forecast sees the economy tracking only a 1.7
per cent growth rate in 2013, a pace that will see the unemployment rate drift
Mr. Shenfeld believes that the weak close to 2012 and the modest rebound ahead
will keep the Bank of Canada from raising rates until third quarter of 2013,
two quarters later than previously forecast. The delay in raising rates will
also result in the Canadian dollar remaining below parity with the U.S. dollar
until the second quarter of 2014.
"Instead of smoothly passing the growth baton from governments and households
to business spending and exports, there's been a fumble," he says. "Housing
has slowed, as has consumer borrowing, and governments face pressures to
tighten belts. But businesses aren't opening their wallets."
While many had forecast business investment to pick up the slack in the
Canadian economy, weak global growth has been holding back capital spending.
The report examined the issue of whether Corporate Canada was sitting on an
excess pile of cash that it should be spending on new projects.
"There is no real evidence from a macroeconomic perspective that corporations
are indeed sitting on excess cash," says CIBC Economists Benjamin Tal and
Peter Buchanan. In fact, "corporations are holding cash levels that are
consistent with a trend we have seen for more than two decades."
They note that, in nominal terms, in real terms or as a share of assets, the
near $600 billion of cash holdings by non-financial corporations in Canada is
at record or near-record highs. However they point out that all the increase
in cash since the beginning of the recession can be fully explained by growth
In real-terms, and as a share of GDP and corporate assets, cash holdings by
corporations are now only back to their pre-recession levels. While businesses
have increased the share of assets they hold in cash, their relative cash
position has been offset by a decline in other current assets - namely
inventories and accounts receivables.
Mr. Tal and Mr. Buchanan found that the higher level of cash holdings has not
come at the expense of capital spending, which at 20 per cent of GDP, is not
only more than three points above its long-term average share, it is also near
a record high.
"Rumours to the contrary, there is no pile-up of excess corporate cash waiting
to be spent on new projects," says Mr. Shenfeld. "And in any event, it's not
cash in the till, but product demand that justifies a new mine, a new well, or
a car plant expansion. With soft prices and transport bottlenecks, the mining,
oil and gas sector, which accounts for the largest slice of business
investment, is poised to cut capital spending in 2013.
'Here's hoping that we're right in our view that better global growth rides to
the rescue come 2014, giving the lift to exports and resource prices that will
be needed to spur the corporate sector on."
The complete CIBC World Markets report is available at:
CIBC's wholesale banking business provides a range of integrated credit and
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markets in North America and around the world. We provide innovative capital
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please contact: Avery Shenfeld, Chief Economist, at
416-594-7356,firstname.lastname@example.org; or Kevin Dove, Communications and
Public Affairs at 416-980-8835,email@example.com
SOURCE: CIBC World Markets
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CO: Canadian Imperial Bank of Commerce
NI: FIN ECO ECOSURV
-0- Mar/04/2013 12:30 GMT
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