Canada’s economy and financial markets will be helped by moderate improvement in oil prices and reasonable growth in the U.S. economy but hindered by Canadian consumer debt levels in 2017, according to Toronto-based Russell Investments Canada Ltd.’s 2017 Global Market Outlook, which was relelased on Tuesday.
“For that reason, we expect domestic equities to be positive, but without the exuberance of 2016,” says Shailesh Kshatriya, director of Canadian strategies at Russell Investments Canada, in a statement. “On balance, we see 2017 economic growth in the range of 1.6% to 2%.”
Meanwhile, Canadian 10-year bond yields are expected to head slightly higher and trade within a range of 1.5% and 1.9% by the end of 2017, the report states.
“With our anticipation that the U.S. Federal Reserve [Board] will raise the federal funds rate, potentially as many as three times by the end of 2017,” Kshatriya explains, “we believe the upward bias in the U.S. yields could help pull domestic yields higher.”
The Bank of Canada’s overnight interest rate will remain steady, the report predicts. Although the central bank entertained the notion of an interest rate cut in its October 2016 meeting, current market conditions may leave such a move ineffective, the report states.
“Cutting rates in the near term, while recession probabilities are low, is a view that is difficult to reconcile,” says Kshatriya. “As such, we expect the central bank will keep their target rate steady at 0.5% in 2017.”
On a global scale, Russell’s investment strategists warn of a challenging market environment. Global economic growth is likely to improve in the short term as political leaders move away from austerity and into providing fiscal stimulus.
However, the growing emphasis on trade protectionism that helped lead to the U.K.’s successful vote to leave the European Union and the election of Donald Trump in the U.S. could lead to slower growth and higher inflation in the long term.
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