Canada’s top economists, strategists, and portfolio managers are cautious about Canadian economic prospects, says Towers Watson’s ‘Annual Survey of Investment Perspectives.’ Canadian GDP is expected to lag the U.S by 0.5 per cent in 2015. Forecasters also expect GDP will fall to 2.1 per cent by 2019 and rise to 2.3 per cent by 2029, which is down marginally from last year. In addition, expectations are that the Canadian unemployment rate will improve to six per cent this year, but there is less optimism about a return to par for the Canadian dollar. The majority of respondents expect the Canadian dollar to trade between 85 and 92 cents U.S. in the short-term with moderate appreciation (93 cents) expected over the next few years. In the current environment, survey respondents do not expect the Bank of Canada to increase the bank rate until late in 2015. For the developed markets, forecasters predict equity market returns of between seven per cent and eight per cent through 2019. “While the decrease in oil prices has certainly cast a pall over the expectations for Canada’s growth prospects, especially in Alberta, there is some positive news,” says Janet Rabovsky, director of investment consulting at Towers Watson. “The declining Canadian dollar has given a boost to the traditional manufacturing provinces of Ontario and Quebec where economic activity has increased and unemployment levels have started to decline. Given that the Canadian dollar is not expected to surge anytime soon, this will certainly offset some of the impact of the decline in the price of oil.” Muted growth expectations add another challenge to defined benefit plan sponsors who already face a potential increase in their pension obligations due to the decline in bond yields during 2014. Combined with potentially lacklustre future equity returns, this means that DB plan sponsors may not see their circumstance improved by market forces alone.
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