Housing market key to growth
By Peter Diekmeyer • Bankrate.com

January, as usual, has banking and investment sector economists fussing over their prognoses for the coming year. To help key talking heads get the word out, the Investment Industry Association of Canada held a series of luncheons again this year, which last week landed in Montreal.

The investment management business consists of convincing others to entrust you with their money. So it should be no surprise that the outlook tended to be positive. "We are perennial optimists," admits Pascal Duquette, president of Natcan Investment Management. "At the micro level things look good."

Stephane Rochon, head of private client research at the Bank of Montreal, agreed that "probabilities are favourable for North American equities." And Peter Gibson, managing director of CIBC World Markets, noted that fears that China may hit economic turbulence, dragging other countries with it, were overblown.

Slower, but positive growth
Private sector economists seem to be coalescing around a view expressed last week by the Conference Board of Canada that despite uncertainties facing the global economy, the country's GDP growth will likely slow slightly to the 2.1 per cent range this year. The think tank cited record household indebtedness, a pullback in public sector spending, and a slowdown in business investment growth for its moderate outlook.

Government spending in particular, which is expected to fall by 0.6 per cent in 2012 due to the federal, provincial and municipal governments efforts to get their budget in line, will take $2 billion in stimulus out of the economy during the period.

That said, despite the overall optimism, forecasters note considerable downside risks to their outlooks, such as continued uncertainty over European debt, gridlock in the U.S. Congress, whether western economies face Japan-style long term sluggishness, or a slip into inflation or deflation.

A strong housing sector contribution
According to the Canada Mortgage and Housing Corporation (CMHC), one reason that Canada continues to have such a relatively positive outlook relates to its strong residential real estate sector. The CMHC's annual "Canadian Housing Observer" report on the state of housing in the country, which was released late last year, provided a stark reminder of the sector's overall influence.