Global growth should surprise to the upside in 2014: CIBC forecast

Global growth should surprise to the upside in 2014: CIBC forecast 
TORONTO, Dec. 11, 2013 /CNW/ - Rising equity prices are signaling better times 
ahead for investors but firmer global growth will depend on central banks 
keeping interest rates steady in 2014, notes a new report from CIBC World 
Markets Inc. 
"Equity markets are sensing it, and this time, they're right. Global growth 
should finally surprise on the high side in 2014," says Avery Shenfeld, Chief 
Economist at CIBC. "A year of 4 per cent global growth is hardly spectacular, 
but will be a point faster than 2013, and a half-point above the last IMF 
forecast. 
"Typically, upside surprises in growth bring higher bond yields. But the 
causation also goes the other way: at a still-fragile point in the cycle, easy 
monetary policy is a necessary condition for growth to accelerate. Central 
bankers in North America, Europe and Japan, each in their own way, are going 
to ask markets to give low rates a chance." 
Canada: Better in 2014 but no home run 
Amid a rising tide of global growth, Canada will be "waiting for a helping 
hand from abroad" to push its economy forward in 2014, say Deputy Chief 
Economist Benjamin Tal and Senior Economist Emanuella Enenajor. "Business 
spending and exports should accelerate, but with consumer spending, 
homebuilding and government outlays all set to underwhelm, growth of 2.3 per 
cent in 2014 will trail the U.S. pace." 
Fortunately for investors, stronger global growth is giving the Canadian 
equity market more room to run. "Our top-down model points to a 12 per cent 
gain in corporate earnings for 2014," says Mr. Shenfeld. "Within the equity 
market, what hasn't played well in the past few years should now outperform." 
That includes equities tied to global growth such as base metals and energy 
stocks. 
CIBC's 2014 forecast for the Canadian dollar sees it bottoming at US$0.91 in 
the first quarter but strengthening to just five cents weaker than the U.S. 
dollar by year end as global growth helps improve the country's trade balance. 
Mr. Shenfeld says early-year weakness for the loonie will be due in part to 
the latest policy statement from the Bank of Canada which encourages 
speculation of a rate cut. Mr. Shenfeld calls this a "phantom rate cut, one 
spoken about but never seen," which can boost economic output through the 
exchange rate while keeping household borrowing in check. 
Mr. Shenfeld expects that the Bank of Canada will hold off hiking interest 
rates until early 2015. "Higher-than-historical levels of household debt imply 
a much slower trajectory back to 'normalcy' for interest rates, as even small 
doses of higher rates will impose a significant squeeze on spending room. 
Don't be surprised if after taking rates to merely 1.75 per cent in 2015, we 
then see a pause at that level to allow the central bank time to gauge the 
economic response." 
U.S.: Revving up for 2014 
In the U.S., "2014-15 could finally see a real recovery take shape," say 
Senior Economist Peter Buchanan and Economist Andrew Grantham. Substantially 
lighter government belt-tightening combined with a "housing recovery in 
progress and the shale revolution boosting U.S. energy and related 
manufacturing," should see the economy achieve 3 per cent growth in each of 
the next two years. 
"Consumers will likely spend some of that newfound wealth on furnishing new 
apartments and houses. Even after leveling off with higher mortgage rates in 
mid-2013, housing starts, home sales and prices remain on broadly upward 
trends. And so far that has come with little help from a key 
demographic—young people," say Mr. Buchanan and Mr. Grantham. 
Meanwhile, tame inflation should see the U.S. Federal Reserve keeping rates 
near zero until 2015, the report notes. 
Global Recovery: Picking up the pace 
After a challenging few years, the global economy is finally showing signs of 
moving out of the slow lane," note Mr. Buchanan and Mr. Grantham. "[Changes] 
on the fiscal side and recent better-looking data suggest the global economy 
is finally poised to move back onto firmer terrain. Growth rates of 4 per cent 
in 2014 and 4.2 per cent the year after would represent the best back-to-back 
increases in nearly a decade." 
The rising tide of growth should go a long way to restoring export momentum in 
emerging markets, they say. China and India are already showing improvement 
and "should continue to contribute disproportionately to global growth and 
resource demand." CIBC is forecasting growth of 8.0 and 5.3 per cent for 
China and India respectively in 2014. 
Meanwhile, in the Eurozone, "fiscal policy should be another catalyst for 
faster-paced growth," say Mr. Buchanan and Mr. Grantham. "With countries 
missing deficit targets no longer being forced to make up the shortfall 
immediately, fiscal drag will likely be much lower." CIBC is forecasting 1.4 
per cent growth in the Eurozone growth in 2014. 
The complete CIBC World Markets report is available at: 
http://research.cibcwm.com/economic_public/download/fdec13.pdf 
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 
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SOURCE  CIBC World Markets 
Tom Wallis, Communications and Public Affairs at 
416-980-4048,tom.wallis@cibc.ca. 
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CO: Canadian Imperial Bank of Commerce
ST: Ontario
NI: FIN ECOSURV ECO  
-0- Dec/11/2013 12:30 GMT
 
 
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