Housing correction to show economic growth to 1% this year, says forecaster

OTTAWA – A leading international forecaster says Canada’s current economic stall will likely last for the rest of 2013 and most of 2014.

Capital Economics predicts in a new forecast that Canada’s growth rate will come it at about one per cent this year and 1.3 per cent next, about half the pace anticipated by the Bank of Canada.

Such below potential rates of growth will translate into the unemployment rate rising from the current 7.2 per cent to 8.1 per cent at the end of 2014, the forecasting firm says.

And Capital Economics says the federal government will have trouble meeting its 2015 balanced budget goal because tax revenues will suffer.

The predicted growth rates are likely the lowest of any established forecasters and also below the consensus estimate of 1.6 per cent used by federal Finance Minister Jim Flaherty in his March budget.

The international firm’s Canadian chief economist, David Madani, says he differs from many in that he anticipates a deep correction in the Canadian housing market, and does not accept the view that business investment will pick up much of the slack.

As well as housing, Capital Economics notes that government austerity will also act to restrain growth.

That leaves exports as the only remaining engine of growth, which Madani does expect to add to gross domestic product this year and pick up further in 2014.