Feature Article
What to expect in 2011
by Dr. Sherry Cooper, BMO Chief Economist
The future is looking brighter for Canada’s economic prospects in 2011. As the U.S. economy gradually recovers, we are forecasting Canada’s economy to grow around 2.7% next year, up from an earlier forecast of just over 2%. In fact, there are several key variables helping to build a strong case for the economy’s anticipated upswing. A stabilizing housing market, a high Canadian dollar, a lower jobless rate, rising commodity prices – they are all factors that will have a meaningful impact on Canada’s economic recovery. Here are the top 10 changes to expect in 2011.
- U.S. growth in 2011 will be at least 3%, boosted by the stimulus of the compromise tax bill and quantitative easing by the Federal Reserve. By extension, Canadian growth prospects have brightened as well, leading to an upgrade of our forecast for Canada's economy to grow around 2.7% in 2011.
- Housing will slowly add to growth in the U.S. for the first time in six years. Housing in Canada should stabilize in 2011.
- The U.S. unemployment rate will finally edge downward to just 9% as inflation remains muted and interest rates rise only moderately by year end. Canada's jobless rate will also trend lower as the year progresses, staying well below the U.S. rate.
- The Fed will remain on hold throughout 2011, marking the third straight year of no interest rate changes by the U.S. central bank, and three straight years of zero interest rates. The Bank of Canada will move first, likely raising rates around the middle of the year as the Fed finishes quantitative easing.
- The three-decade bull market in U.S. Treasuries will finally end and stocks will perform well. The U.S. savings rate will inch upward to around 6%, triple the level before the recession.
- Despite reports of its imminent demise, the U.S. dollar will hold its own next year, weakening only slightly against a basket of major currencies. The resumption of BoC rate hikes will provide a lift to the Canadian dollar.
- Trade tensions with China could heat up as the U.S. trade deficit continues to widen and the Chinese currency appreciates only moderately.
- Commodity prices will rise solidly, despite moderate growth in the G-7 countries, as the emerging market recovery forges ahead at a robust pace. This is a positive for Canada's economy.
- Oil could test the $100/barrel threshold for the first time since the financial crisis broke open in the fall of 2008.
- Even with widespread concerns over the Fed "printing money" and stronger oil prices, inflation will be barely above 1%.
For a more comprehensive look at recent economic research and forecasts, visit us online at BMO Capital Markets Economics.