Canada – good 2013 growth or not?


Bank of Canada governor Mark Carney says Canada’s economy is in the midst of what he believes will be a successful transition from over-dependence on borrowing to production. The transition will however include continued weakening of the Canadian housing market, but deliver stronger exports.

This multi-year transition has been implemented since the collapse of the asset-backed commercial paper (ABCP) market back in 2007, when skittish investors fled the stock markets and banks. Mr. Carney, the then-recently appointed governor of the Bank of Canada, recognizing the potential for disaster if the proposed restructuring didn’t get done, stepped in and played a large role in getting the job done successfully and saving Canada from Armageddon. Since then the economic restructuring and stimulus has played out well according to Mark Carney.

“I think what we’ve done successfully, time will tell, is we’ve pivoted from stimulating household demand — housing market and household borrowing for consumption — kept employment up, and we’ve pivoted to focus on investment and exports,” Mark Carney told the Feb. 17, 2013 CTV Question Period program.

He went on to say; “That’s a difficult rebalancing, but what we’re seeing without question is a very constructive evolution of Canadians’ attitude towards debt and towards the housing market and it is moving towards a much more sustainable equilibrium,” said Carney, who is about to leave his job to take over the helm of the Bank of England this summer.

Mark Carney agreed that the doubling of Canadian home prices in only a few years is “certainly not normal and you certainly shouldn’t expect it to continue to perform like that.” He continued; “We’ve seen the adjustment of the (Canadian) housing market, we think there’s a bit more to come over the next couple of years.”

Not all economists are as confident as Carney on the transition period. The Bank of Canada is projecting economic growth to average about 2% this year, but some private sector analysts believe it will be a more challenging period.

“Suffice it to say, the jury is very much out on whether we have in fact pivoted to exports and investment,” said Bank of Montreal economist Doug Porter, noting that exports are down almost 10 per cent from a year ago, and that capital spending has also softened.

“In this environment, it seems the risks to growth are almost uniformly on the downside for 2013, unfortunately,” Porter added.

A recent Economist survey also confirms our worries about the Canadian real estate market, which indicates that the Canadian real estate market remains the world’s most overvalued despite the recent cooling, see

According to a Jan 23, 2013 article in the Financial Post; Recent reports showed that Canadian home price gains in December were the lowest in three years. Meanwhile, home sales in the Greater Toronto Area have plummeted 50% from the year before. See

Professor Robert Shiller of Yale University was interviewed on Feb. 7, 2013 by Trish Regan of Bloomberg TV who asked about why US residents should buy if only to trap their savings in a home. She went on to say, “They’re running an opportunity cost of not having that money liquid to earn a better return in the market. Why do it?”

“Absolutely!” Shiller exclaimed. “Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, new ones are better.”

He continued. “So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000’s. And I don’t expect it to come back. Not with the same force. So people might just decide, “Yeah, I’ll diversify my portfolio. I’ll live in a rental.” That is a very sensible thing for many people to do.”

At TriDelta Financial we reiterate our cautious stance on buying Canadian real estate and also see merit for many to rent depending on their personal financial situation. For reference see our Jan 2013 article here

And lastly, CIBC chief economist Avery Shenfeld, who was recently voted the most accurate forecaster of the past two years, says the country’s gross domestic product output will only expand by 1.7 per cent, marking the third consecutive year of losing altitude in the growth statistics since 2010.

Fortunately at TriDelta, we’re tenacious in seeking pockets of growth and opportunities both in Canada and globally.

Article compiled from various media sources by Anton Tucker, VP TriDelta Financial