Despite a more optimistic outlook for exports, Canada's economy is expected to grow just 2.3 per cent this year, according to The Conference Board of Canada's Canadian Outlook: Winter 2014.
"Export and business investment growth were subpar in 2013. But with growing demand from the U.S. and a weaker Canadian dollar, export volumes and investment will see stronger growth and, as a result, overall economic activity will pick up," said Pedro Antunes, Deputy Chief Economist. "However, modest spending by Canadians and fiscal constraints by governments in order to return to fiscal balance will keep the economy from fully capitalizing on the rebound in exports."
As the federal and most provincial governments reduce their deficits, the public sector is expected to contribute little to economic growth. Real government spending on public services and infrastructure will increase by only 0.5 per cent this year before accelerating by one per cent in 2015.
For consumers, low interest rates and soft price inflation are helping to sustain spending despite modest labour income growth in 2014. However, spending on big ticket items, such as cars and home furnishings, will moderate next year as financing costs start to edge up. Real household spending is forecast to grow by about 2.3 per cent per year this year and next.
Although Canada's export volumes posted only modest gains in the second half of 2013, the growing strength of the U.S. economy should boost trade over the next two years. Following growth of 1.3 per cent last year, total exports are forecast pick up in 2014 with growth of 3.4 per cent, followed by 4.2 per cent growth in 2015.
Despite its recent depreciation, the Canadian dollar remains a relatively strong currency thanks to solid commodity prices and Canada's relatively good economic performance. We expect the dollar to remain at or above the 90 cent range throughout the forecast.
Along with exports, business investment is expected to pick up this year and in 2015, bolstered by spending in machinery and equipment. Following growth of just 1.1 per cent in 2013, business investment is projected to increase by 3.1 per cent this year.