Canada's external factors the key driver, but also the key risk

The anticipated rotation of Canadian growth, and indeed much of the growth forecast, is reliant on how developments beyond the borders feed into the domestic economy. There are two key risk channels: foreign demand and the interest rate environment. Should export growth come in weak as a result of deficient foreign demand, overall economic growth would likewise disappoint what is already a low bar. 

Similarly, a more rapid increase in borrowing costs due to spillover from the U.S. would create an additional headwind to the housing market and consumer spending, both sectors that lack pent-up demand to power through. 

"Our forecast is for somewhat weaker growth than anticipated by the Bank of Canada's October outlook. We do not view the difference in outlook as sufficient in size to warrant another cut in the policy rate. But, should the risks identified above materialize, a policy response would likely be warranted, particularly in the case of deficient foreign demand given the high dependence on export-driven growth to the overall picture", says TD Economics.