Friday, May 28, 2010

Canada on track to lead G7 economies this decade: CIBC

By STEFANIA MORETTI, QMI Agency

This may be Canada’s decade, according to a new report by CIBC that predicts the country is likely to lead growth in the G7 for the next 10 years if it plays its cards right.

Relatively lower government and corporate debt, immigration and trade balances mean it’s Canada’s “time to shine,” according to a report released Friday by CIBC World Markets.

Mounting debt troubles in Europe and geopolitical tensions in Asia have grabbed headlines in recent weeks.

It’s not that Canada will benefit from others’ malaise, Avery Shenfeld, CIBC's chief economist, told QMI Agency. A weakening in any part of the world is still bad for every other country in terms of exports.

“It’s more that when we look at who’s going to do better over the medium term, we have some advantages in terms of not having as many problems as they do.”

Problems in Europe have overshadowed Canadian fundamentals and even dampened expectations for growth.

But Canada's rich resources, resilient financial system and favourable demographics relative to other G7 nations make it an economic contender looking out over the next five to 10 years, Shenfeld said.

Another notable positive is in Canada's healthier state of public- and corporate-sector balance sheets.

But these factors aren’t “ironclad,” Shenfeld warned. They only mean Canada is better positioned than its debt-laden counterparts. “It’s not smooth sailing from here.”

Controlling ballooning debt and tightening fiscal policy appear to be the keys to success, Shenfeld said.

Canada’s central bank will be among the first to hike its interest rates this summer, so growth may not be something to boast about in 2011. But that will change, Shenfeld said.

“It’s as we look further on that we will have fewer years of cuts, that Canada may, in fact, shine through,” he said.

Finance Minister Jim Flaherty has put into motion a plan to rein in spending with the hope of all but reducing Canada’s budget deficit from $53.8 billion in 2010 to less than $2 billion by 2015.

Canada’s parliamentary budget officer has said the effort isn’t enough, and that five years down the line, federal balance sheets are projected to show a structural deficit of $12.3 billion.

Still, Canada’s current federal deficit of 3% of GDP (5% including provinces) pales in comparison to the U.S.'s and U.K.'s double-digit deficit-to-GDP rations, Shenfeld said.

Canada’s population and productivity demographics are also in better shape than more mature economies thanks to strong immigration and renewed business investment.

Resource-hungry emerging markets will also ensure strong demand for energy and metal products, which traditionally account for about a third of Canada's domestic income growth, the report said.