What happened in the economy and markets in 2013, and what may happen in 2014

OTTAWA – As 2013 winds down, Bank of Montreal chief economist Doug Porter released his list of the five most interesting and, at times, surprising economic developments from the year. He also gives his five “fearless” predictions for 2014.

In descending order, here is Porter’s list of the interesting and the surprising of 2013:

1. The U.S. government managed the biggest one-year decline in the budgetary deficit on record. In a single year, the shortfall plunged US$400 billion to US$680 billion.

2. Despite the doomsayers, the Canadian housing market added to economic growth in 2013 as sales rose rather than fell, and prices increased rather than corrected.

3. The euro was the strongest major currency in the world in 2013. The weakest? The South African rand, hammered by a steep drop in gold prices.

4. Gold suffered its first price decline in 13 years, tumbling about 28 per cent.

5. The U.S. stock market was on track to outperform bonds by the widest margin in 50 years as the New York market heads for one of its best years since the 1990s and U.S. 10-year treasuries weakened for only the fifth time in 30 years.

Porter’s expectations for 2014:

1. The economic gap between Central Canada and the West will narrow as Ontario stands to gain most from the pick-up in the U.S. economy. In what Porter calls “a stretch” — Ontario may beat out Saskatchewan in growth.

2. The U.S. will lead the G7 in growth. Possibly, the U.S. employment rate will drop below Canada’s for the first time since the start of the 2008-09 recession.

3. The Bank of Canada will stay put on interest rates. That’s an easy one, but the stretch, says Porter, is that no major central bank will change interest rates in 2014.

4. The U.S. Federal Reserve ends QE3 (the latest instalment of quantitative easing) and the markets don’t panic. The stretch call is that the TSX will finally begin to compete with New York for gains.

5. Inflation will continue to be non-existent in the industrialized world. It’s possible that troubled Italy will keep price increases more modest than even the U.S. and Germany.