07/30/2013 03:02 EDT | Updated 09/29/2013 05:12 EDT

Canadian Economy No Longer Fastest Growing Among G7


OTTAWA - A new forecast suggests Canada's long run leading the world's biggest economies in growth is at an end.

Capital Economics says Canada's economy will only grow by 1.5 per cent this year, and slow further to one per cent in 2014 as the country's over-built housing market comes crashing to earth.

That would mean the U.S., Germany and likely Japan could outperform Canada in growth in one or both years.

Canada generally outperformed the Group of Seven industrialized economies during the 2008-09 recession and in the aftermath, but has seen the actual growth rate slow each year of the recovery period from 3.4 per cent in 2010, to 2.5 per cent in 2012, to 1.7 per cent last year.

The Capital Economics scenario stands in sharp contrast to the Bank of Canada's expectation that a strengthening U.S. recovery will revive Canada's exports sector, leading to a pick-up in business confidence and investment.

The private sector economic consulting firm agrees exports will receive a minor boost, but says Canada's economy will be dragged down by domestic factors, most critically by a housing correction and low consumer spending.

Under this scenario, Capital Economics says the central bank will hold off on raising interest rates until late in 2015, adding that if bank governor Stephen Poloz does change policy in the next few years, it will more likely be to lower rather than hike rates.

The report comes the day before Statistics Canada's report on May gross domestic product growth, which most economists expect to be a relatively robust 0.3 per cent due to relatively strong indicators during the month.

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