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7 reasons to underweight Canada

7 reasons to underweight Canada

Posted by Juan Gavasa on December 18, 2014

The falling price of crude may have something to do with the dimming economic outlook in Canada, but one economist says the list of headwinds for the domestic picture includes much more than just oil.

David Doyle, North American economist and Canadian market strategist at Macquarie Capital tells BNN these seven factors are contributing to sluggish growth:

Competitiveness

Canada’s productivity rate is slower than the U.S. and that’s because the commodities boom of the last decade has left the manufacturing sector largely ignored, leaving Canada on the sidelines of the export market.

Energy capital spending

Business investment has flowed into resource-related projects and stagnated within the energy sector, making the economy less diversified than the U.S. and consequently more vulnerable to the steep decline in crude oil prices.

Domestic labour market

Doyle says the extended fall of oil will force the Canadian economy to diversify, which means there needs to be supportive policies in place to train and strengthen the labour markets in sectors such as manufacturing.

Relative monetary policy

Doyle says he expects the Bank of Canada to hold interest rates until the end of 2016 and anticipates the loonie to weaken to as low as 75 cents US at the end of 2016.

Trade balance

Canada’s high level of trade dependence will not bode well for the economy in the longer term, according to Doyle, as the weakening loonie will drive the prices of imported goods up.

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