Five of Canada's top economists delivered their predictions for the new year on Wednesday, a list marked by consensus but not without a few risky bets.
Before an audience of Bay Street's powerful, including many wealth managers looking to improve on a strong 2005, economists from Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, CIBC World Markets Inc. and Royal Bank of Canada agreed Canada was due for another strong economic year, but there was no shortage of caveats.
“We're looking at growth this year basically feeling like last year,” said RBC chief economist Craig Wright. “We're looking at lower commodity prices, but certainly not low commodity prices.”
Growth isn't expected to be even across the country, however. Most economists picked Alberta to grow fastest this year, but Scotiabank chief economist Warren Jestin said British Columbia may be the growth surprise story. Mr. Jestin expects the province to grow by 4 per cent in 2006, twice the rate he forecasts for central Canada, as BC continues to exploit its position as a gateway to Asia. The biggest risk to Alberta's growth prospects, he added, is a potential labour shortage.
However there was general consensus that Ontario and Quebec aren't likely to lead the pack in economic growth this year.
“You can pretty much draw a fault line between Western Canada and the border with” Ontario, Mr. Jestin said.
Central Canada's manufacturing sector took a beating last year from a combination of high energy prices, international competition and a strong loonie.
The panel was more mixed on growth prospects in the U.S. BMO chief economist Rick Egelton expects strong economic activity south of the border for a variety of reasons, including lower energy prices, tame inflation and lots of fiscal stimulus from the post-Katrina rebuilding effort.
But a substantial slowdown in the U.S. during the second half of this year was the basis for most of Don Drummond's predictions. The chief economist at TD said all it would take is a slight reversion from current red-hot housing prices in the U.S. to wipe out a significant portion of the country's gross domestic product growth. Such a downturn would impact U.S. energy demand and may lead to $50-a-barrel oil by the end of the year, he said.
Mr. Drummond's prediction for oil was at the low end of the panel's estimates — some expect energy prices to remain high, while others expect a slight downturn. Predictions were equally mixed for the Canadian dollar, with predictions of year-end exchanges against the greenback both lower and higher than current levels. The biggest risk for the loonie is a weakening of the U.S. dollar, Mr. Egelton said. If foreign investors tire of accumulating U.S. dollar assets, the ensuing slump would likely correspond to further strengthening in the Canadian dollar, he said.
However Mr. Egelton was the most optimistic of the panel when it came to overall Canadian growth.
“We see another good year for Canada,” he said. “In fact a better year than '05.”
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