Canada's economy will lag the United States this year, slowing compared with 2011 and probably falling short of cheerier economic forecasts touted by the Bank of Canada earlier this week, a Reuters poll found on Thursday.
While Canada will fare better than many of its Western peers, especially in Europe where many countries are in or close to recession, there was a sense of caution in the forecasts of around 30 economists polled over the past week.
The survey predicted the economy will grow 2.1 percent this year, unchanged from the consensus three months ago and a little weaker than the US forecast of 2.3 percent.
Forecasters raised their targets for Canadian growth in the first two quarters of 2012, but pared their outlook for the second half.
By contrast, the Bank of Canada said it saw the economy striding towards full capacity, reaching that state in the first half of 2013.
"Canada really did a lot of work early on in 2011 and 2012 so you can call the recovery in Canada more front-loaded," said David Tulk, chief Canada macro strategist at TD Securities.
"Now we're waiting to get more external support from a stronger US In the US it's been a very slow recovery so far and only now are we beginning to see things fall into place."
Canada is expected to match US growth again in 2013 at 2.4 percent, according to the poll.
Forecasters were less bullish than the Bank of Canada, which issued a revised outlook this week that showed the economy growing 2.4 percent this year and next.
"We share the Bank of Canada's view that government and trade will not be significant drivers of growth," said Avery Shenfeld, chief economist at CIBC World Markets.
"But we're also concerned that the consumer sector may not be as strong as we would like as households respond to high debt levels by being more cautious about taking on more credit to finance consumption and housing." The booming Canadian housing market, which has not had a correction like in the US, remains a worry for analysts and policymakers are also keeping a close eye on it.
Housing starts are expected to average 190,000 annualised units in 2012, up from 183,000 forecast in the previous poll. Starts unexpectedly rose to 215,600 units in March.
The Bank of Canada said on Tuesday it may need to begin raising interest rates even as fears of a flare-up of the European debt crisis have not fully faded. The surprisingly hawkish stance has prompted some of the country's primary dealers to pull forward their forecasts for an interest rate hike, though most expect the first to happen next year.
"As long as we still have the backdrop of very low interest rates we should still see a continued investment in real estate," said Tulk.
"We should see business investment also starting to turn up a little bit now that we can shift the balance of risk away from some of the more dangerous risks in Europe." Even as Canada's economy notches modest growth, the US is still set to outperform Canada this year for the first time in seven years, the poll showed.
Sal Guatieri, senior economist at BMO Capital Markets, said the key factor weighing on Canada is that consumer spending is slowing.
"The consumer accounts for just over half of economic activity so if over half of your economy is growing at a 2.0 percent rate your overall economy can only grow so fast, especially if your currency is overvalued and you're government is cutting spending," said Guatieri.
"We think the US will lead the G7 countries with 2.4 percent growth this year, partly because households there are picking up spending very modestly after so-called deleveraging for the past four years," said Guatieri.
In Canada, the unemployment rate is expected to come in at 7.3 percent this year and fall to 7.0 percent in 2013. The forecasts were unchanged from the last survey.
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