SOOTHSAYER CONSENSUS(Negative Consensus/Bull Market Indicator) Canadian forecasts coming down

May 1, 2015

The latest survey of Soothsayers by the Conference Board of Canada paints a bleak picture of the Canadian economy for the remainder of the year. The Survey of Forecasters is a quarterly survey conducted by The Conference Board of Canada, reflecting the opinions of Canada’s top forecasting organizations and their outlook for the Canadian economy. The current survey was conducted during April 2015, and the following organizations participated: The Conference Board of Canada, Scotiabank Group, BMO Capital Markets, Royal Bank, Desjardins Group, and the Toronto‑Dominion Bank.

Some highlights:

  • Forecasters predict that the economy will expand by a less-than-stellar 2.1 per cent this year—down from the already-sluggish 2.3 per cent anticipated in the winter. Tepid real GDP growth of 2.2 per cent is expected in 2016.
  • Lower oil prices will have a major impact on investment spending, inflation, corporate profits, interest rates, and the loonie. Spending on machinery and equipment is expected to decline by 0.2 per cent in 2105, due mainly to the sharp drop in spending in Canada’s oil patch.
  • The forecasters are predicting that corporate profits will rebound in 2016 with a gain of 8.1 per cent, suggesting they are confident that world oil prices will increase over the near term.
  • The forecasters have changed their interest rate projections accordingly. They expect short-term interest rates to average 0.8 per cent in 2015, compared with a forecast of 1.1 per cent in our winter survey. Similarly, interest rates are forecast to average 1.3 per cent in 2106, down from the 1.75 per cent anticipated in the previous update.
  • Forecasters expect the loonie to average US$0.80 in 2015 and US$0.82 next year.

 

It appears that the Soothsayers are taking down their estimates and if the Consensus is negative then given their track record of consistently being wrong, I would be compelled to take the other side of the trade. If indeed their thesis holds, interest rates should stay low and a lower Loonie could provide a tailwind for a short-term pop in exports and subsequently profits. Such a scenario could roll itself into some meaningful appreciation in stocks in the short to medium term.