Canadian economy is in transition: Tal

This will be a year of change for the Canadian economy, predicts Benjamin Tal, managing director and deputy chief economist at CIBC World Markets.

“In 2013, there aren’t many forces that will contribute to overall economic growth,” he adds. “However, the economy will be ready for better performance come 2014.”

Read: Look to the long term in 2013: BMO

He finds the country’s slow growth is primarily the result of softening in consumer demand and housing.

“The level of debt Canadians are carrying, alongside some softening in the housing market, suggests the consumer will not be a major driver of economic activity,” explains Tal.

Read: Underweight Canada, says CIO

Meanwhile, the export market is expected to improve later this year, with commodities remaining relatively stable—something that will keep Western Canada healthy.

Compared to the U.S., Tal says Canada will underperform. Where the U.S. is starting to see recovery, Canada is in a period of transition.

Read: Canada should hedge against commodity risk: CIBC

“The market [will] see a better economic environment in 2014, and you’ll see the stock market starting to price this in,” he adds. “That will benefit stock valuations in the second half of the year.”

The risk of interest rates rising in 2013 is also very low, which is a factor that will contribute positively to dividend-paying stocks and REITs.

Read: Interest rates won’t budge until 2015: Scotiabank

“In the second half of the year and in 2014, the stock market will dance to the tune of corporate profit,” Tal notes.

Not to mention, “High-beta, cyclical stocks will be outperforming [and] that’s when the global economy will start showing some positive signs, including [improvement in] China, the U.S. and even the Eurozone.”

Read:

Canada should pursue global markets: Scotiabank

Canadian CEOs confident about outlook

2013 Budget to include spending cuts: Flaherty