Canadian economic growth in 2012 will fall short of 2.1%, the Bank of Canada’s original projection.
“The bank has already indicated it’s willing to lower this forecast,” says Benjamin Tal, deputy chief at Economy Services.
That’s in part because consumer spending is softening.
“We see less reliance on credit by households and the housing market is leveling off,” says Tal. “All this suggests economic activity will not be very strong over the next year and a half.”
Read: Canadian economy losing momentum: BoC
Financial growth will be further limited in 2013 by U.S. fiscal policy. “The U.S. is going to have a significant drag on its economy due to fiscal factors which will therefore have a negative impact in Canada.”
Tal attributes Canada’s slowdown to the broader global decrease in economic activity in engines like Europe, China and the United States.
Read: Canada feeling European heat
“At the end of the day, the ECB is the only entity that has enough power to save the Euro,” says Tal. “They will do whatever it takes to provide liquidity for the system, buy time and ease the pressure on bond yields.
“Germany needs the Euro as much as the Euro needs Germany, but, politically speaking, Merkel will find it very difficult.”
For the coming year, Tal predicts the ECB will inject liquidity.
“I’m seeing the rescue facility providing capital to banks, directly or indirectly. And the ECB will be buying bonds in the secondary market.
“Those factors will ease tension, but I will not be surprised if a year or two from now, Greece and other small countries exit the union. I don’t see it happening now given how fragile the situation is.”