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US Demand, Global Prospects to Boost Canada’s Economy in 2014

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US Demand, Global Prospects to Boost Canada’s Economy in 2014

The outlook on the Canadian economy will brighten in 2014, if forecasts are any indication. The export-driven nation of 35 million faltered in the second-half of 2013 amid global volatility and declining commodity prices. In 2014, however, the same pressures that bogged down the Canadian economy will begin to ease, as global demand and US recovery continue to accelerate.

Canada’s gross domestic product will expand 2.3 percent in 2014, according to the Bank of Canada. This follows a disappointing gain of 1.7 percent in 2013. The most optimistic projection, courtesy of Deutsche Bank, sees the Canadian economy accelerating 2.9 percent this year.

The BOC slashed its growth forecast for the Canadian economy in 2013, 2014 and 2015, citing sustained growth headwinds in the global economy. According to BOC Governor Stephen Poloz, Canada will return to full capacity by the end of 2015. Canada’s GDP is expected to grow 2.6 percent that year.

Free Trade
As Canada’s largest trade partner, accounting for more than three-quarters of total trade, the United States is key to Canada’s growth prospects in 2014. To-date, Canada’s large export base is the only component of the economy that has not returned to pre-recession levels. As the US economy continues to accelerate, Americans will rely on Canadian building materials, machinery, industrial equipment, automobiles and oil to fuel business growth and satisfy consumption demand.

Canada’s vast resources and large industrial base have allowed it to prosper through free trade. Canadian businesses have demonstrated their ability to compete with other advanced industrialized countries in several areas, including manufacturing. For the first time in its history, Canada sells more commercial services to the United States than it purchase from it.

US Federal Reserve
Last summer, BOC Deputy Governor John Murray reassured investors Canada has more to gain from the eventual demise of the Federal Reserve’s stimulus program. According to Murray, the elimination of record stimulus is a sign the US economy is back on track, which is ultimately to Canada’s benefit.

The Fed decided to begin paring asset purchases by $10 billion at the December FOMC policy meetings. The Fed will ease $75 billion per month into the financial markets, beginning in January. The pace and timing of subsequent cuts has yet to be determined. The US jobless rate unexpectedly fell to 7 percent in November after back-to-back months of impressive job gains.

Modest job gains and virtually non-existent inflation were some of Canada’s biggest challenges in 2013. In the year ahead, weak government spending and a slowdown in residential construction will be the biggest factors inhibiting growth in the world’s eleventh largest economy. The message from Ottawa is that job growth will be among the government’s top priorities in 2014. Through the government’s Economic Action Plan and other policies, Canada seeks to establish a tighter labour market across the nation, matching job seekers with commensurate employment opportunities.

Canada’s unemployment rate was unchanged at 6.9 percent in November, after climbing to a yearly high of 7.2 percent in July. Compared to year-ago levels, Canada’s unemployment rate has improved by half a percentage point. Youth unemployment was 13.4 percent in November, unchanged from the previous month. Compared to year-ago levels, youth unemployment has improved by 0.6 percentage points.

Youth unemployment is a chronic issue in Canada, with new workers under the age of 25 struggling to find employment in their field of study. Through several strategies, the Canadian government will target youth unemployment and prioritize high-demand occupations in the fields of information technology, science, natural resources and professional services.

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