Public support for the governing Conservative Party of Canada (CPC) has rebounded a bit since mid-2012, but Prime Minister Stephen Harper’s party will have to boost its numbers further before it can be confident of winning another majority at an election required by October 2015. In that regard, the CPC is unlikely to repeat its uncharacteristically strong 2011 performance in the Atlantic provinces, where support for the Tories has dropped especially sharply since the general election, and has remained stuck at a low level even as the party’s national standing has recently improved.

Of greater immediate concern to Harper’s government are the obstacles impeding the realization of the country’s substantial hydrocarbons potential, chief among them the government’s own ambivalence about the participation of foreign state-owned companies in the energy sector. Development of Canada’s natural resources sector will require as much as $650 billion in investment over the next 10 years. Local companies cannot raise that level of capital, so much of the money will have to come from abroad, and Canadian officials believe that private companies can shoulder the load.

Even so, Harper’s government must take care not to alienate Chinese investors, who will no doubt figure prominently in any Plan B the government might implement if private investors fail to deliver as anticipated. In addition, China could become a crucial market for Canada’s oil output if US opponents manage to scuttle a proposed pipeline that would carry oil from the tar sands south to the Gulf of Mexico.

In terms of macroeconomic policies, “stretched valuations” in the housing market remain a source of concern. Steps taken thus far to reduce that stretching, such as tightening requirements for mortgages, have begun to produce results, and data from the final months of 2012 revealed a general cooling trend that points to an end to the country’s housing boom. As long as macroeconomic conditions favor the maintenance of a loose monetary policy, the prospects for a soft landing are fairly bright. However, any developments that prompt the Bank of Canada to hike interest rates would squeeze indebted homeowners hard, and would significantly increase the danger of a damaging crash.


The PRS Group
About The Author The PRS Group
The PRS Group is a leading global provider of political and country risk analysis and forecasts, covering 140 countries. Based on proprietary, quantitative risk models, the firm's clientele includes financial institutions, multilateral agencies, and trans-national firms.

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