Canada 2013 growth outlook cut on exports, housing -Reuters poll

Wed Jan 23, 2013 9:40am EST

* Forecasters chop 2013 Canadian GDP target to 1.8 pct

* Outlook hurt by soft export demand, cooling housing market

By Solarina Ho

TORONTO, Jan 23 (Reuters) - Canada's growth outlook dimmed over the last quarter, a Reuters poll showed on Wednesday, with soft export demand, a strong currency, and a cooling housing market combining to weaken economic expectations.

Economists now expect Canada's economy to expand just 1.8 percent this year, down from the 2.0 percent rate predicted in the previous poll published Oct. 11.

The survey of 33 respondents over the past week also showed forecasts cut for the fourth quarter of 2012 to an annualized rate of 1.3 percent, down from 1.9 percent three months ago. The first quarter forecast fell to 1.8 from 2.0 percent.

Growth is seen accelerating to a 2.5 percent annualized pace in the third quarter, reaching 2.6 percent in Q4.

"The economy will strengthen through the year and get back to a more normal or a more moderate rate of growth by the end of this year," said Sal Guatieri, senior economist at BMO Capital Markets.

Analysts cited a number of factors for the downgraded outlook. Among them were modest growth prospects for the United States, destination for most of Canada's exports, as well as slower global growth, which has hit commodity prices.

Soft foreign demand for Canadian commodities and other exports contributed to a jump in the Canadian trade deficit in November, when it hit the fourth-largest level on record

The strong Canadian dollar, which traded above the one-for-one level with the U.S. currency for much of last year, is a challenge for exporters. It's expected to hold near these levels throughout 2013.

"Almost certainly we'll lag the U.S. for the second straight year, simply because we're dealing with a very strong currency," said BMO's Guatieri. "You can argue a pretty a clear case the Canadian dollar is above so-called 'fair value'. So that's holding back our trade performance."

Economists polled increased the size of their forecasts for Canada's 2013 current account deficit. By the end of this year, analysts see a current account deficit of C$62.2 billion, higher than October's expectations of C$44.25 billion.

Some forecasters said a pickup in Canadian growth in the latter half will depend heavily on the United States, where some recent data, including retail sales, have shown better-than-expected results.

"Strengthening in U.S. exports -- that's essentially where we are hanging our hats, heavily on the U.S.," said John Clinkard, chief Canadian economist at Deutsche Bank Canada.

COOLING HOUSING MARKET

Another challenge for the Canadian economy is a cooling domestic housing market. The country's real estate sector boomed following the financial crisis on the back of record low borrowing costs.

But government measures to tighten mortgage rules have hurt housing sales. The Reuters poll showed analysts expect housing starts of around 187,200 in 2013 and 180,000 next year, down from the more than 200,000 starts forecast for 2012.

"Housing in Canada ... has lost a fair bit of steam and likely to remain relatively depressed over the first quarter," said Clinkard.

The sluggish economic outlook suggests the Bank of Canada is unlikely to act soon on its threat to tighten monetary policy.

Economists predicted the next quarter-point interest rate increase in its main rate, steady at 1.0 percent since late 2010, would occur in the first quarter of 2014, instead of the fourth quarter of 2013 as forecast in October.

The consensus is calling for the next interest rate increase to come later -- in the first quarter of 2014 compared with the last quarter of 2013 in a poll taken just a week ago. But that is a close call.

Inflation expectations have also fallen. Consumer prices are expected to rise 1.7 percent in 2013, less than the 2.0 percent predicted three months ago, which is also the Bank of Canada's target for the inflation rate.

Canada's unemployment rate is seen at 7.3 percent during the first quarter of this year. The rate is forecast to fall to 6.9 percent by the middle of 2014. It hit a four-year-low of 7.1 percent in December, despite a slowing economy. (Polling by Teresa Ruiz; Editing by Jeffrey Hodgson/Jeremy Gaunt)