No surprises in 2014

If you were hoping for an economic surge in 2014, don’t hold your breath.

This was the message sent by a Speaker’s Forum economist panel in November 2013. It consisted of David Rosenberg from Gluskin Sheff and Associates, Eric Lascelles from RBC Global Asset Management, and Andrew McCreath from Forge First Asset Management.

Canada, in particular, will lag this coming year, says the panel. The resource and housing sectors will weigh on our nation’s performance, adds Lascelles.

On the plus side, he says, “there’s already been some normalization [of Canada’s economy].” Though it may flatline for the next few years, he suggests our performance will improve alongside the U.S. fiscal situation, and as Europe and China start to expand.

As McCreath suggests, “We’re tied to the hip of the U.S. economy, given 71% of our exports go south of the border.” He added all eyes will be on our national balance sheet, though the deficit will likely fall to 3% of GDP in 2014 and continue to improve.

McCreath also predicts the Canadian dollar will fall, in part due to long-term pressure on commodities. When asked about the 2015 election, the panel says current reforms related to employment and immigration, for example, will help boost the economy in the long run. They agree politicians will likely stay the course and continue to focus on Canada’s balance sheet.

South of the border

The best choice for investors in 2014 is the U.S., says the panel.

Additional highlights:

Deflation will soon become yesterday’s story, says Rosenberg. Lascelles adds inflation may remain suppressed for the next three to eight years in Canada.

Any inflation we see in Canada will only affect certain products, adds McCreath. He predicts rent, taxes and food will continue to rise, while non-essentials like clothes will drop in price. He adds that mobile tech stocks and the U.S. auto sector will outperform.

Since Obama wrestled a budget deal in October, says Rosenberg, there’s been renewed hope for the future. He finds the U.S. political playing field is equalizing and “we may see a budget deal passed [without a fight] in January,” which would help boost markets.

Further, he says, “it’s a miracle its economy didn’t fall into recession this year. There’s now underlying growth, and housing and exports will improve in 2014. Up to 3% growth in 2014 is achievable.” Lascelles adds U.S. stock markets will rise as the country’s political and economic risks are minimized. Markets may be slow through 2014, but investors shouldn’t sit on the sidelines.

But McCreath says a major risk is that real income is flat in the U.S., and its economy may not grow by the expected 3% or 4% if people aren’t earning enough. He concedes the country’s consumer, financial and energy sectors will remain strong.

The U.S. employment market will also continue to improve. Despite slow growth in 2013, the economy had generated more than 2.3 million jobs as of October, according to U.S. Current Employment Statistics data. In 2014, the panel said it could create up to four million jobs, which would encourage business investment and increased consumer spending.

Global perspective

Japan, China and Europe took the spotlight during the panel’s discussion about global players.

Rosenberg is bullish on current Japanese reforms, and adds, “China plans five to 10 years in advance, and achieves its [growth] goals 80% of the time. Future growth may not be 10% or 12%, but it will be upward of 7%.”

He’s also positive on France, Ireland and Germany. He predicts the global economy will grow between 3.5% and 4%. Regarding the Eurozone, Lascelles says, “It has snuck out of recession and is starting to expand. Fiscal austerity is diminishing and the risk appetites [of global investors] are on the upswing.” There’s also more business investment in the region.

For his part, McCreath is bearish on France and Italy; he says officials have made fiscal errors and have stumped growth. What’s more, the risk in the Eurozone is “banks have to shed $1 trillion to $2 trillion in assets. [The region] is dependent on its banks and continues to be negative” as a result.

Katie Keir is assistant editor of Advisor Group.