UBS raises 2010 outlook for Canadian GDP growth

Date: Monday, June 7, 2010
Author: Investment Executive

UBS Securities Canada Inc. has raised its forecast for Canadian gross domestic product growth this year, while cautioning that the hot start to the year is likely to slow in the months ahead.

In a new research report, UBS raised its outlook for 2010 GDP growth from 3.2% to 3.5%, citing the impressive 6.1% growth in the first quarter, which was the strongest in over a decade. However, it says that the details of that growth include several factors that will likely prove unsustainable, slowing growth in 2011 to 3.2%.

The four factors it expects to moderate near-term growth include: accelerated house buying, ahead of tighter lending standards and the introduction of the harmonized sales tax; the end of inventory rebuilding; the low consumer savings rate; and the growth in stimulus spending appears to be abating.

“Nonetheless, we remain above consensus because the consumer has ample margin in terms of debt service ratios,” it says.

“More broadly, government and corporate yield curves still appear consistent with a respectable recovery, and given the lags, their gradual flattening is only likely to be felt in 2012 growth. Finally, we highlight that Canada’s safe haven status has led the [Canadian dollar] to be even stronger than the level indicated by commodity prices, which will continue to restrain net exports in volume terms.”