A tale of two economies

Consumer inertia will weigh on Canada’s economy going forward, says Benjamin Tal, deputy chief economist at CIBC World Markets.

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Our domestic economy won’t do well next year, he adds, since consumers aren’t starved for product here the way American consumers are. In Canada, people “borrowed [their] way out of the recession [and]…there’s not much pent-up consumer demand” due to still-high credit and debt levels.

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Then we have the overvalued real estate market: though Tal doesn’t foresee a housing crash, he does anticipate activity will slow down in major cities such as Vancouver, Toronto and Montreal.

Read: Why to invest in U.S. real estate

It’s important for advisors to consider the impact of this trend, he adds, since fewer consumers may benefit from climbing real estate prices. In the next year, “the domestic economy will be subdued.”

But the external economy will remain robust, says Tal, “mainly due to commodity prices and some improvement in demand from the U.S.” As such, the valuation of companies linked to exports will likely rise, while businesses linked to consumer spending may falter.

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