The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.
The Canadian economy is expected to continue its recovery and maintain solid growth in 2004 and beyond, according to an annual survey of leading Canadian economists released yesterday by Watson Wyatt. The 23rd Annual Watson Wyatt Survey of Economic Expectations finds that Canadian Gross Domestic Product (GDP) is expected to grow at a rate of 3.0 percent in 2004, down from 3.1 percent predicted last year. A low inflation forecast of 1.8 percent for the current year and 2.1percent for the long-term Ð down significantly from last year's forecasts (2.5 percent for the short and long-term) Ñ further contributes to the rosy outlook, signalling confidence in the Bank of Canada's monetary policies, as well as continued economic stability. The Canadian dollar is also expected to remain strong. After a significant rally in 2003, when it reached well above last year's predicted level of $0.65 versus the U.S. dollar, forecasts call for the dollar to stabilize at current levels of $0.78 U.S. for the next five years, then to increase to just over $0.80 U.S. over the long-term. "The survey results reaffirm that the Canadian economy is on course for prosperity, as experts anticipate an improvement in economic indicators almost all across the board," said John Gilfoyle, National Practice Director, Investment Consulting at Watson Wyatt. "Unlike last year when the optimistic stance was somewhat offset by expectations of declining productivity and living standards, the picture this year is extremely positive." According to the survey findings, Canadian labour productivity is expected to hit 2 percent for the long-term, up from 1.7 percent in the 2003 survey. This optimism is critical to Canada's future living standards. An improvement in long-term productivity is likely to help offset wide-scale labour shortages anticipated in the 2010's. Additionally, respondents see the unemployment rate decreasing from 7.4 percent in 2004 to 6.8 percent for the long-term. Performance expectations for equity markets are also very positive, albeit not at the levels of the late 90s, with participants expecting U.S. and international equities to yield 9 percent and Canadian equities to return 8 percent in 2004. This continues a trend of more realistic expectations that emerged in 2003 following the stock market decline in 2001-2002. Long-term returns are expected to be around 8 percent worldwide. The optimistic outlook in equity markets also translates into an expected increase in the long-term gross return on pension funds invested equally in equities and bonds to 4.7 percent (real) and 6.8 percent (nominal), up from last year's prediction of 4.3 percent and 6.7 percent respectively. See 'Relief' P.# Con't from P.# "This outlook should provide some relief for members of defined contribution plans and Group RRSPs who are still trying to recover from the bad news of 2000- 2002," said Gilfoyle. However, for defined benefit plan sponsors, rosier equities forecasts are offset by an anticipated drop in long-term bond yields, from last year's predicted returns of 5.4 percent to 5.0 percent in 2004. A drop means higher liabilities. In the long-term, survey participants expect yields to rise to 5.5 percent, same as was predicted last year. "This suggests further short-term pain, but longer-term stability for many plan sponsors who are focused on controlling their plan costs," said Gilfoyle.
