for poll data
* Growth forecast at 1.9 pct in 2017 and 2018
* Bank of Canada expected to keep rates steady on Jan 18
* Rates forecast to rise to 0.75 pct in third quarter of
By Anu Bararia
Jan 12 The possibility that U.S. President-elect
Donald Trump will follow through on his protectionist campaign
promises has dented the outlook for Canada's economy, with
nearly half of economists polled paring back growth forecasts.
A majority of analysts who answered an extra question in the
poll said they were concerned Trump's expected trade agenda will
have a serious impact on Canada's economic growth over the near-
The Bank of Canada is therefore predicted to hold rates
steady at 0.50 percent for much longer than had been
anticipated, with analysts pushing out expectations for a hike
to the third quarter of 2018, versus the first quarter just a
Although, in its recent Business Outlook Survey, the bank
indicated improved business prospects, economists in the poll
said there was too much uncertainty emanating from Trump's
threat to scrap the North American Free Trade Agreement (NAFTA).
Canada exports about 75 percent of its goods to the United
"If he rips up NAFTA, it is going to be a pretty harsh blow
to Canadian exporters, given that the U.S. is their primary
export market," said Nick Exarhos, director at CIBC Capital
"It would also have severe consequences for business
investment as firms could be cautious on expanding capacity."
As the price of oil - a key Canadian export - collapsed in
2014, Bank of Canada Governor Stephen Poloz pinned his hopes on
a non-energy export-led rebound in Canada, saying a combination
of a weaker domestic currency and stronger U.S. demand would
make a potent mix.
Providing some respite, oil prices have risen while the
Canadian dollar is expected to weaken against its U.S.
counterpart on predictions the Federal Reserve will tighten
policy further and the BOC will stay on the sidelines.
Although energy prices could be capped under $60 a barrel
this year, well below their mid-2014 high of $116, the loonie is
likely to close the year around 3 percent lower than its current
But robust demand from the United States could remain a big
ask if Trump executes the restrictive policies he has talked
Mexico is facing an even worse situation as Trump has
pledged to build a border wall and make Mexico pay for it. He
has also threatened a hefty border tax, sending the Mexican peso
to historic lows.
For Canada, lackluster export growth could increase
household borrowing and make a decline in the housing market,
where much of the debt is invested, more painful.
An average Canadian household owed $1.67 for every dollar of
disposable income in the third quarter of last year.
Canada's housing market, a major driver of economic growth,
is also expected to cool this year due to the government's new
Economic growth will be 1.9 percent this year, short of the
bank's and October's poll estimate of 2.0 percent, the poll
forecast. It will expand at the same rate in 2018, below the
bank's 2.1 percent projection.
The most optimistic forecast for 2017 in the poll was for a
2.3 percent expansion in economic activity versus 2.8 percent
expected in October.
Although the Liberal government's fiscal stimulus is likely
to lend support to the economy through infrastructure spending
this year, economists said there could be a need for more in the
event of an external shock.
"Overall, fiscal stimulus from Ottawa is helpful but what is
also going to be helpful is the fiscal stimulus in the U.S.,"
said National Bank of Canada's Krishen Rangasamy.
"We are assuming that common sense will prevail among
policymakers and trade flows are going to continue the way they
Yet, with overall inflation remaining below the bank's 2
percent target and the economy still weak, a small minority of
economists expects the BOC to cut rates and two of 34 predicted
a trim when the bank meets next week. The bank cut twice in 2015
to offset the oil price shock.
With high household debt and weak economic growth,
policymakers face a dilemma whether to lower rates to stoke
growth or raise them to discourage further borrowing.
Analysts in the poll gave a median 25 percent probability
the next move by the bank would be a rate cut.
(For other stories from the poll )
(Polling by Anu Bararia and Purnita Deb)