Conference Board forecasting labour market is out of gas
Scotibank forecasts the economy will average 1.9% growth this year.
OTTAWA: Canadians are in for at least two more years of slowing economic activity and low job creation, a condition that should keep interest rates low until 2014, says the Bank of Nova Scotia.
In a new forecast, Scotiabank economists Derek Holt and Dov Zigler estimate the economy will likely average 1.9% growth this year, and 1.8% in 2013.
The forecast is slightly below consensus, and well south of the Bank of Canada’s recently revised projections of 2.1% and 2.3% growth in 2012 and 2013.
The forecast comes on the same day as a Conference Board report that suggests Canada’s labour market has run out of gas, and could even register a loss of jobs for the month of July.
Scotiabank’s take on the economy also follows this week’s disappointing gross domestic product performance in the month of May, a 0.1% gain that suggests second-quarter growth will be below 2%.
At such a slow pace of expansion, the spare capacity in the economy will actually increase over the next two years, rather than be fully eliminated by the end of next year, as the Bank of Canada projected last month.
“At best, we’re going to see a very slow-growth environment with downside risks,” said Holt, Scotiabank’s vice-president of economics.
He added that most developed countries will be in the same boat, with strong growth coming mostly from emerging economies like China, India and Indonesia.
This should keep the Bank of Canada on hold at the current policy interest rate setting into 2014, the report said, although governor Mark Carney has maintained a tightening bias, meaning he is signalling a rate hike in the future.
That will be difficult, said Holt, given that many global central bankers are easing lending conditions. Any counter action from Canada will light a spark under the dollar, further weakening exports.
South of the border, the US Federal Reserve that the American economy is losing strength and repeated a pledge to take further steps to stimulate growth if the job market doesn’t show sustained improvement.
Also, the Conference Board reported that its help-wanted index fell 4.5 points to 120.5 in June, a reading suggesting only modest job gains in the near term.
The Ottawa-based think tank predicts July’s employment report from Statistics Canada will show a loss of 5,500 jobs, marking the first setback since February.
After two strong months of job creation in March and April, the last two months have seen only moderate growth, both under 8,000 jobs.
“This is not surprising, as the uncertainties created by the debt crisis in Europe and a potential slowdown in China and the US are leading Canadian employers to adopt a cautious pace of hiring,” the Conference Board said.
Holt said that Canada’s difficulty with returning to a period of strong economic growth is two-fold – soft global demand is putting a check on the export sector, while domestically, the economy has already fully recovered and then some from the recession, leaving little pent up demand to exploit.
That’s particularly the case in the housing sector, which is at, or near, record levels in prices, sales and home ownership, as well as household debt.
“When you are operating at very elevated heights across variables that comprise about three-quarters of the economy, can you post any further growth? I don’t think so.”
As such, Scotiabank has the US outperforming Canada in growth this year and next with 2.1% and 1.9% advances, largely because it is further behind on the road to recovery.