Boston, MA -- (SBWIRE) -- 11/25/2013 -- The ongoing theme for the Canadian economy is 'rebalancing'. The mix of growth will shift away from private consumption and towards net exports, as household balance sheets remain under pressure, and US demand picks up.

We are becoming somewhat concerned at the moribund recent performance of business investment, but expect an improvement in gross fixed capital formation going into 2014 and 2015, as the recovery in the US buoys corporate sentiment as well as external demand for Canadian exports going into 2014.

Among developed states, and in stark contrast to the neighbouring US, Canada has an enviable fiscal record. We see very limited risk of a Canadian fiscal crisis we see the federal budget balance returning to surplus by 2016-2017.

Major Forecast Changes

We have downgraded our 2014 real GDP growth forecast for Canada to 2.3% from 2.5%, with the 2015 projection rising slightly to 2.5% from 2.4%.

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With headline inflation averaging below 1.0% in H113, and unlikely to rise quickly, we have lowered our average inflation forecasts for 2013 and 2014, to 1.1% (from 1.5%) and 1.7% (from 2.0%), respectively.

Key Risks To Outlook

Downside Risks To Growth Forecast: Domestically, a hard landing for the housing market could push the Canadian economy into recession. Externally, a relapse in US growth would hit Canada's attempt at economic rebalancing particularly hard, as it would severely hurt demand for Canadian exports and damage corporate investment sentiment. A hard landing in China would cause a commodities collapse, further damaging Canadian terms of trade.

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