Economic outlook: Picture brightens for entrepreneurs

3-minute read

The beginning of the year is a good time to have a look into our crystal ball and try to answer the question entrepreneurs want to know: How will the Canadian economy perform in 2014?

To look ahead, it's always important to know where we stand. And it's now clear that 2013 was a turning point for the two largest economies in the world.

The U.S. economy, Canada's No. 1 export market, gained momentum last year and is showing positive signs for 2014. It has created a large number of jobs, closing the year with the lowest unemployment rate since November 2008.

U.S. consumers in a mood to shop

While U.S. business investment and exports are growing, the most positive news is coming from consumers. They are back in buying mode and, more importantly, they are in a better position to spend.

To understand why, you only have to look at the improvement of American household balance sheets over the last 5 years. The ratio of household debt to income fell to around 100% in 2013 from 130% in 2008.

The result is that consumer spending, which accounts for 70% of the U.S. economy, should contribute strongly to economic growth in 2014.

European economy also on the rebound

In Europe, meanwhile, the economy also seems to have reached an inflection point. In 2013, the Eurozone experienced positive economic growth for the first time in almost two years.

This growth should continue in 2014 as consumer spending and business investment grow. Government balance sheets are also improving across Europe, which should allow for an easing of austerity measures and help the economic recovery.

Exports prospects bright for Canadian entrepreneurs

This is all good news for Canadian entrepreneurs. Europe and the U.S. economies represent almost half of the world economy. As the world economy improves in 2014, Canadian exports should contribute more to economic growth than in the past few years.

That's fortunate because exports should help take up the slack in a slower domestic economy. In contrast to the U.S. situation, Canadian household debt is at a historic high and this will limit consumer spending. It will grow, but at a modest pace.

This is particularly evident in the slowing housing market. It put the brakes on the economy in 2013 and will continue to do so in 2014. On the other hand, business investment is expected to pick up in support of export opportunities following a sluggish year in 2013 mainly due to a decline in the mining sector.

Interest rates to remain stable

Finally, interest rates should remain around their current level through 2014. Although the Canadian economy will perform better in 2014, it will probably not reach its full potential before 2015. Moreover, inflation remains low in Canada.

The new cycle of growth in the U.S. and Europe is coming at the right time for the Canadian economy. It will support economic growth in 2014 and provides an added incentive for entrepreneurs to get started on an international growth plans or expand their existing efforts.

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