An analysis that shows global emerging markets growing at a steady clip, and mature markets creeping out of recession despite Greece's debt, misses one modest exception: the Bank of Canada now projects that the Canadian economy will grow a faster-than-expected 3.7% this year. In January the Bank had forecast that the economy would grow 2.9% in 2010.

As well, Moody's expects that Canada’s GDP will increase 3.2% in 2010, up from a previous forecast of 2.7%. And in 2011, Moody's expects growth of 3.7%, matching the Bank of Canada’s optimistic view for 2010.

In line with this view, though more modest in its expectations, a recent survey of around 26 economists predicts the Canadian economy will emerge from recession to grow by an annualized 3.3% this year, higher than the 2.5% expected in a similar poll from January.

Recent reports also show that Canadian businesses are upbeat about hiring intentions and expansion, with the three-month trend on housing starts pointing to strength.

Housing starts are now expected to average 182,000 units in 2010, up from 173,000 units forecast in January. For 2011, housing starts are forecast to hold at 182,000 units. As well, Canada’s unemployment rate will average 8.1% this year, according to a median forecast of economists. It is expected to fall to 7.6% in 2011.

But the risks are real

Morgan Stanley has outlined the risks Canada faces. They come from both global and domestic factors, and include:

Slower global growth. If global demand slows or remains sluggish next year, the Canadian economy will be sensitive to the slowdown.

Slower U.S. growth.  The US growth path is especially important, given Canada's strong trade exposure.  Morgan Stanley economists are forecasting 2.5% growth in the US next year.  If growth surprises to the downside and the US consumer retrenches, Canadian exporters will be disproportionately affected.

Commodities.  Commodities are a double-edged sword: though strong prices are good for many resource-based businesses in Canada, excessive commodity price rises could stoke inflation concerns.  Alternately, softer prices would present downside growth and inflation risks for Canada and give the BoC more room to stay on hold.

Productivity growth.  On the domestic side, a risk stems from productivity growth, which has been persistently sluggish over the past decade.  The low productivity could be problematic for Canada's long-term capacity use.  Weaker productivity could also raise inflation concerns, even if growth disappoints.