Canadian economic growth to improve but remain sluggish in 2013: CIBC

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 
Markets Inc. 
"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 GDP. 
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 
capital markets products, and investment banking to clients in key financial 
markets in North America and around the world. We provide innovative capital 
solutions and advisory expertise across a wide range of industries as well as 
top-ranked research for our corporate, government and institutional clients. 
please contact: Avery Shenfeld, Chief Economist, at 
416-594-7356,; or Kevin Dove, Communications and 
Public Affairs at 416-980-8835, 
SOURCE: CIBC World Markets 
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CO: Canadian Imperial Bank of Commerce
ST: Ontario
-0- Mar/04/2013 12:30 GMT
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