The Bank of Canada (BoC) believes the country’s economy needs to shift toward exports in order to lift the present malaise. In the near term, however, the economy remains challenged, and the government shutdown in the US will likely weigh on Canada’s fourth-quarter gross domestic product (GDP).

In an effort to better manage investors’ expectations, the BoC made an unusual move this week by having Deputy Governor Tiff Macklem announce that the central bank had lowered its forecasts for economic growth in advance of the official release later this month. Macklem has significant credibility with the markets, as he was former Governor Mark Carney’s longtime deputy, as well as one of the leading contenders to helm the bank prior to Poloz’s appointment.

Macklem said the central bank expects GDP growth for the second half of the year will range between 2 percent and 2.5 percent, which is below its July forecasts of 3.8 percent and 2.5 percent for the third and fourth quarters, respectively. These revised projections bring the bank’s numbers more in line with institutional economists. A Bloomberg survey of private-sector economists shows average forecasts of 2 percent and 2.4 percent for the third and fourth quarters, respectively.

Macklem also noted that the economy must grow at a minimum of 2.5 percent annually in order for demand to outpace supply. Given that government and household expenditures contribute 1.5 percentage points to GDP growth, that means exports and business investment will have to deliver at least a full percentage point of growth to boost the economy. Private-sector economists forecast that full-year GDP growth will finally exceed the 2.5 percent threshold in 2016, when the economy is projected to grow by 2.65 percent.

Exports have been a major focus of the BoC in recent months, perhaps in part because Poloz was previously the CEO of Export Development Canada, the government’s export credit agency. Unfortunately, exports and business investment have not made meaningful contributions to growth over the past year, according to Macklem.

And earlier remarks last month by Poloz described the lack of new company formation in Canada since the Global Financial Crisis, with exporters and manufacturers, in particular, still in a deep slump. Fortunately, the government is endeavoring to aid these two areas.

Prime Minister Stephen Harper is emphasizing trade deals with Asia and other emerging markets, in order to reduce the country’s dependence on the US, which is Canada’s largest trading partner. To that end, Harper is currently in Southeast Asia to attend the Asia-Pacific Economic Cooperation Summit in Bali.

Emerging markets account for just 12 percent of Canada’s exports, even though they’re responsible for 80 percent of growth worldwide. Harper has had mixed success thus far brokering such agreements, as evidenced by negotiations for an elusive trade pact with the European Union that have been ongoing for more than four years.

Meanwhile, Finance Minister Jim Flaherty hopes to help Canada’s ailing manufacturing sector by extending a key tax break that incentivizes investment in new equipment and machinery. The policy, which sunsets in 2015, allows companies to use an accelerated capital cost allowance program with a straight line 50 percent depreciation rate, as opposed to a declining one.

One of the manufacturing sector’s major headwinds has been the relatively strong Canadian dollar. The loonie spent much of 2011-12 trading above parity with the US dollar, peaking at USD1.06 in July 2011. But it fell below parity earlier this year in mid-February, bottoming at USD0.95 in early July and trading near USD0.97 more recently.

A new study from the University of Ottawa shows that 55 percent of the 278,000 jobs lost in Canada’s manufacturing sector from 2000 to 2007 were closely correlated with the loonie’s strength compared to the US dollar. So a longer-term decline in the Canadian dollar will help make the manufacturing sector’s exports to the US more competitive. According to a Bloomberg survey of economists, the loonie is forecast to drop to USD0.90 by 2017.

In the near term, however, the US government shutdown has likely given the currency a base of support at current levels. Depending on its duration, the shutdown could pare two-tenths of a percentage point to four-tenths of a percentage point from fourth-quarter US GDP. That could cause the US Federal Reserve to defer tapering its $85 billion per month bond-purchasing program until sometime next year. Of course, once the taper finally happens, the loonie is expected to weaken.

And since the US is Canada’s largest trading partner, the shutdown could have a moderately deleterious effect on the economy up north. While services provided at airports and border crossings have been deemed essential by the US government and, therefore, remain staffed, some Canadian firms are worried that the shutdown could still create inefficiencies in these areas.

In the unlikely event that the shutdown lasts as long as a month, Craig Wright, the chief economist for the Royal Bank of Canada, said in an interview with the Toronto Star that fourth-quarter US GDP would drop by half a percentage point, which would translate into a 0.25 percentage point decline for Canada.

Canada’s continued dependence on a resurgent US economy means that the next quarter or two will likely be bumpy. But once the US government gets past its budget impasse and the Fed commences its taper, Canada’s economy can begin its rebound in earnest.

Bay Street Beat

We’re currently in the quiet period between earnings seasons, so analyst sentiment for the vast majority of our Portfolio stocks has barely changed over the past month. Nevertheless, there were a handful of developments worth noting.

CIBC World Markets upgraded Cineplex Inc (TSX: CGX, OTC: CPXGF) to “sector outperform,” which is equivalent to a “buy,” though its 12-month target price remains at CAD42. Its previous rating was “sector perform,” or “hold.” Euro Pacific Canada also initiated coverage with a “buy” rating and a 12-month target price of CAD42.

The mix of analyst sentiment improved to seven “buys,” four “holds,” and one “sell.” The consensus 12-month target price increased to CAD40.55 from CAD39.85. This new level suggests a potential one-year return of 3.1 percent above the current share price.

Industrial Alliance Securities downgraded Davis + Henderson Corp (TSX: DH, OTC: DHIFF) to a “hold” from a “buy,” though its 12-month target price of CAD28 remained unchanged.

The mix of analyst sentiment now stands at four “buys” and four “holds,” with a consensus 12-month target price of CAD27.57, which is the same level as last month.

Desjardins Securities initiated coverage of EnerCare Inc (TSX: ECI, OTC: CSUWF) with a “buy” rating and a 12-month target price of CAD11.25. The mix of analyst sentiment improved to five “buys” and two “holds,” while the consensus 12-month target price rose slightly to CAD10.83 from CAD10.75. The latter suggests a one-year potential return of 14.9 percent above the current share price.

EVA Dimensions downgraded Northern Property REIT (TSX: NPR-U, OTC: NPRUF) to “underweight,” which is equivalent to a “sell,” from “hold,” while Canaccord Genuity Corp lowered its rating to “hold” from “buy.” The latter firm also decreased its 12-month target price to CAD28.80 from CAD32. EVA Dimensions does not currently offer a target price for this REIT.

The mix of analyst sentiment now stands at five “buys,” three “holds,” and two “sells.” The consensus 12-month target price is CAD29.89, down from CAD30.25 a month ago. The new target price suggests a potential return of 10.1 percent above the current unit price.

Student Transportation Inc (TSX: STB, NSDQ: STB) reported earnings on Sept. 16, with sales beating analysts’ estimates by 1.1 percent, while earnings per share exceeded expectations by 33.3 percent. Nevertheless, the mix of analyst sentiment remained unchanged at two “buys,” three “holds,” and one “sell.”

However, the consensus 12-month target price dropped to CAD7.17 from CAD7.48. Still, that suggests a potential one-year return of 11.5 percent.

While the mix of analyst sentiment for Lightstream Resources Ltd (TSX: LTS, OTC: PBKEF) essentially remained the same, the consensus 12-month target price fell to CAD9.08 from CAD9.50 a month ago. The new level suggests a potential one-year return of 21.6 percent above the current share price.

In the listing below, the number of analyst “buy,” “hold” and “sell” ratings for each company are shown, followed by the average 12-month target price among the analysts for which we have access to such data.

Month-over-month variances in the number of analysts listed below for each stock are often due to those securities being on a brokerage’s restricted list for a brief period. A restricted list is a compliance measure that’s typically used during the period when the investment banking side of an analyst’s firm is involved in advising the company.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–5–3–1 (CAD40.56)
• Artis REIT (TSX: AX-U, OTC: ARESF)–7–3–0 (CAD16.91)
• Bank of Nova Scotia (TSX: BNS, NYSE: BNS)–10–8–2 (CAD64.15)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–4–4–0 (CAD12.79)
• Brookfield Real Estate Services Inc (TSX: BRE, OTC: BREUF)–0–1–0 (CAD13.50)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BEP)–10–1–1 (CAD31.97)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–7–1–0 (CAD25.11)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–7–4–1 (CAD39.85)
• Davis + Henderson Corp (TSX: DH, OTC: DHIFF)–4–4–0 (CAD27.57)
• Dundee REIT (TSX: D-U, OTC: DRETF)–4–2–0 (CAD34.35)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–5–2–0 (CAD10.83)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–7–3–1 (CAD10.50)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–6–5–0 (CAD63.30)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–5–3–2 (CAD29.89)
• Pembina Pipeline Corp (TSX: PPL, NYSE: PBA)–8–3–1 (CAD36.15)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–5–5–0 (CAD28.06)
• Shaw Communications Inc (TSX: SJR/B, NYSE: SJR)–5–8–4 (CAD25.25)
• Student Transportation Inc (TSX: STB, NSDQ: STB)–2–3–1 (CAD7.17)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–7–4–0 (CAD22.77)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–0–1–1 (CAD12.50)
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–5–4–1 (CAD39.78)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–7–10–0 (CAD29.45)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–0–7–2 (CAD4.72)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–1–5–0 (CAD18.00)
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–19–1–1 (CAD46.47)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–10–6–1 (CAD20.04)
• Extendicare Inc (TSX: EXE, OTC: EXETF)–0–3–2 (CAD6.94)
• Lightstream Resources Ltd (TSX: LTS, OTC: PBKEF)–3–13–1 (CAD9.08)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–9–0–1 (CAD18.27)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–1–0–0 (CAD8.00)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–6–4–0 (CAD19.22)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–10–6–2 (CAD33.52)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–11–5–1 (CAD61.81)
• Wajax Corp (TSX: WJX, OTC: WJXFF)–2–7–0 (CAD36.00)