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Canada Country Risk Report Q3 2015


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Canada Country Risk Report Q3 2015

Core Views

The collapse in global oil prices will see Canada's energy-related fixedinvestment fall and rising unemployment hurt household spendinglevels this year and next.

A sharp decline in goods imports and demand for personal travelservices will largely offset the adverse effect of lower oil prices onCanadian crude exports this year, ensuring a continued narrowingof Canada's current account deficit.

The Canadian dollar will remain under considerable downside pressureas oil prices remain low and short-term interest rates in Canadaand the US continue to diverge.

Major Forecast Changes

We have lowered our real GDP growth forecast from 2.1% to 1.5%in 2015 and see growth climbing to just 1.7% in 2016, from ourprevious forecast of 2.3%, falling oil prices will see a sharp drop infixed investment.

We have revised up our current account deficit forecast for Canadafrom 1.5% of GDP to 1.7% in 2015, on account of a decline in thevalue of goods exports.

We now expect the Canadian dollar to average CAD1.26/USD in2015, compared to our previous forecast of CAD1.20/USD, as aninterest rate cut and lower oil prices will see additional downside forthe exchange rate.

We forecast an additional 25bps cut to the overnight rate to 0.50%in 2015, and see rates on hold until 2017.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Political Outlook
Expense Trial Could Hurt Harper's Re-Election Hopes
The upcoming federal general election in Canada will in all likelihood result in either a minority government headed up by the
Conservatives, or the Liberals form ing a coalition with the New Democratic Party. A criminal trial of a former senator and ally of the
prime minister could hurt the incumbent administration's chance of re-election.
Tabl e: POLITICAL OVERVIEW
Long-Term Political Outlook
Strong Foundation, But Some Challenges From Within
Canada has one of the highest long-term political risk indices 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
Oil-Related Pessimism Will Drive A Sharp Deceleration In Economic Growth
The collapse in global oil prices will see Canada's energy-related fixed investment fall and rising unemployment hurt household
spending levels this year and next.
Tabl e: GDP By Expenditur e
Tabl e: Real GDP Growt h For ecasts , %
Balance Of Payments
Currency Weakness Will Keep Current Account Deficit Narrowing On Track
A sharp decline in goods imports and demand for personal travel services will largely offset the adverse effect of lower oil prices on
Canadian crude exports this year, ensuring a continued narrowing of Canada's current account deficit.
Tabl e: Curr ent Account
Exchange Rate Policy
CAD: Out-Of-Consensus Assumptions Point To Additional Depreciation
The Canadian dollar will remain under considerable downside pressure as oil prices remain low and short-term interest rates in Canada
and the US continue to diverge. We are below consensus in our oil price outlook, as well as our forecast for Canada's overnight rate -
we see an additional cut this year - meaning that market expectations have room to adjust further, keeping the Canadian dollar on the
back foot.
Tabl e: BMI Curr enc y For ecast
Chapter 3: 10-Year Forecast
The Canadian Economy To 2024
Structural Factors Will 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.
Tabl e: Long -Term Macro economic For ecasts
Chapter 4: Key Sectors
Freight Transport
Tabl e: Road Freig ht
Tabl e: Rail Freig ht
Tabl e: Inland Wat erwa y Freig ht
Tabl e: Air Freig ht
Tabl e: Maritim e Freig ht
Power
Tabl e: El ectricit y Generating Capacit y Data And For ecasts
Tabl e: El ectricit y Generating Capacit y Data And For ecasts
Other Key Sectors
tabl e: Oil and Gas Sector Key Indicators
tabl e: Pharma Sector Key Indicators
tabl e: Telecoms Sector Key Indicators
tabl e: Food and Drink Sector Key Indicators
tabl e: Infrastructur e Sector Key Indicators
tabl e: Defenc e and Securit y Sector Key Indicators
tabl e: Autos Sector Key Indicators
Chapter 5: BMI Global Macro Outlook
Global Outlook
Softening Growth Picture
Tabl e: Global Assumptions
Tabl e: Develop ed Stat es, Real GDP GrowtH , %
Tabl e: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Tabl e: Em erging Mark ets , Real GDP Growt h, %

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