Canada’s economic outlook is brightening, and confidence with it.
Several economists, including those at Royal Bank of Canada, Toronto-Dominion Bank, UBS Securities Canada and the University of Toronto, have recently nudged up their economic growth forecasts for this year.
Improving global conditions are the chief reason, as the U.S. economy shows increased signs of vigour and Europe moves to contain its financial turmoil. Closer to home, high commodity prices will support Western Canada while low interest rates will underpin business and consumer spending.
Taken together, after months of uncertainty, confidence is making a comeback.
“Some of the worst-case scenarios [on Europe, the U.S. and China]look a little less worrisome now than they did, say, in December,” said RBC chief economist Craig Wright, who is raising his projection for growth to 2.6 per cent this year. “The uncertainty is easing.”
High commodity prices and strong corporate balance sheets will boost business investment this year, while a stronger U.S. economy will spur demand for Canadian exports such as autos, lumber and machinery, he added. He sees export levels returning to prerecession levels by next year.
Business confidence is starting to bloom. Many companies have been sitting on cash. Now, some are paying or raising dividends and planning stock buybacks – Apple Inc. is the latest example – while merger-and-acquisition activity is also picking up.
Canadian businesses plan to boost investment by 6.2 per cent to $306.3-billion this year, according to Statistics Canada’s investment intentions survey, which was released last month. If that holds true, investment would be at a record level.
Positive economic winds in the United States are boosting business for Mel Svendsen, chief executive officer of Standen’s Ltd., a Calgary-based firm that makes vehicle springs and suspensions for trucks and trailers.
“We are indeed seeing some upticks,” Mr. Svendsen said. “We are slightly ahead of plan for the first quarter and we are seeing some strengthening of the U.S. customer base.”
The pent-up demand for commercial trucks in the United States is flowing through to his business, he said, and strong commodity prices are improving sales in the agriculture, mining and petroleum sectors.
“These guys are busy and they are spending money, so that is creating some momentum,” said Mr. Svendsen, who is implementing some new staff training programs to prepare for a busy stretch. “We do strongly believe this is going to be a better year.”
Standen’s has little business in Europe, but the more stable outlook there is still helping overall business conditions.
David MacDonald, CEO of Toronto-based technology services firm Softchoice Corp., said he is now seeing “good growth and positive customer confidence” from his company’s customers in the United States.
That level of optimism is a bit higher than a few months ago, he said. “We are not seeing anybody slow budgets down or slow investments down.”
Of course, risks persist. As the outlook for the global economy improves, many of the threats to the Canadian economy are now tilting to the domestic side. Of these, ballooning household debt is the No. 1 concern.
“The biggest worry is the imbalances in household finances that have been growing,” says Derek Burleton, deputy chief economist at Toronto-Dominion Bank, which nonetheless boosted its forecast for Canadian GDP on Monday, citing improvements in Europe.