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Canada Country Risk Reports Q2 2015

Canada Country Risk Reports Q2 2015

Core Views

The sharp drop in oil prices will prolong Canada's economic rebalancing, by weighing on fixed investment growth over the few years. The current account deficit will narrow as strong US demand and a weaker exchange rate boost non-commodity exports over the coming years.

The 2015 general federal election will be very close, after the Conservatives have succeeded in halting their slide in opinion polls.

Executive Summary
Core Views
Key Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
2015 Election Shaping Up As A Close Race
This year's federal general election in Canada will be a close race. The Conservative Party managed to halt its slide in the polls towards
the end of 2014, raising question marks over the Liberal Party's ability to maintain its upward momentum heading into 2015.
table: Political Overview
Long-Term Political Outlook
Strong Foundation, But Some Challenges From Within
Canada has one of the highest long-term political scores in the world, reflecting its history of stable governance and strong institutions.
Nevertheless, Canada faces political challenges over the coming decade, including a potential shift in power from east to west.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Structurally Lower Oil Prices To Delay Fixed Investment Recovery
Falling oil prices will damage fixed investment growth, which will prolong the Canadian economy's rebalancing and lead to lower
average growth over the coming years. Nevertheless, strong US demand and a weaker exchange rate will keep export volumes buoyed
and gradually pave the way for higher fixed investment growth, maintaining a long-term trend growth of 1.9% through to 2024.
Table: Ec onomic Growth Forecasts
Balance Of Payments
Current Account Deficit Narrowing To Continue Despite Lower Oil Prices
Canada's current account deficit narrowing will continue over the coming years, aided by sharp exchange rate depreciation and
improving economic conditions in the US. Lower oil prices will curtail export growth in 2015, but manufactured goods exports will
increasingly pick up the slack, ensuring a secular decline of the current account shortfall.
Table: Current Acount Forecasts
Exchange Rate Policy
CAD: Fall In Oil Prices Reaffirms Negative Outlook
The Canadian dollar will continue to weaken against the US dollar over the next two years, averaging CAD1.200/USD in 2015 and
CAD1.210/USD in 2016, compared to an average of CAD1.100/USD in 2014. Although we have already seen significant moves lower
in the exchange rate, a more dovish monetary policy outlook in Canada, compared to the US, and the halving in global oil prices since
June will keep firm downside pressure on the currency.
Table: BMI Currency Forecast
Monetary Policy
BoC Cut Indefinitely Postpones Policy Normalisation
A surprise decision by the Bank of Canada (BoC) to lower its overnight rate by 25 basis points to 0.75% on January 21 indicates the
extent to which policymakers are concerned about the negative effects of sharply lower oil prices on the Canadian economy. We will be
revisiting many of our monetary policy and exchange rate forecasts over the coming days, but at this stage do not expect the beginning
of a broader monetary easing cycle by the BoC.
CANADA Q2 2015
Chapter 3: 10-Year Forecast
The Canadian Economy To 2024
Structural Factors To Constrain Growth
Canada has several structural strengths that will work in its favour over the coming decade, including an enviable fiscal situation, a
well-educated workforce, and a good business environment. However, growth will be constrained by other structural factors, including
deteriorating demographics, the end of the global commodity boom, and household deleveraging. We are forecasting average long-term
real GDP growth of 1.9% to 2024, compared with 2.9% in the decade preceding the 2008-2009 global financial crisis.
Table: Long -Term Macroeconomic Forecasts
Chapter 5: Key Sectors
Table: Autos Total Market – Historical Data And Forecasts
Food & Drink
Table: Food Consumpti on Indicators – Historical Data & Forecasts
Table: Mass Grocery Retail Sales By Format – Historical Data & Forecasts
Other Key Sectors
Table: Oil and Gas Sector Key Indicators
Table: Pharma Sector Key Indicators
Table: Telecoms Sector Key Indicators
Table: Defence and Security Sector Key Indicators
Table: Inf rast ructu re Sector Key Indicators
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table: Global Asu mpti ons
Table: Developed States, Real GDP GrowtH , %
Table: Emerging Markets , Real GDP Growth, %

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