As we head into 2012, there still appears to be a sense of misplaced confidence regarding Canada's economic fundamentals and growth prospects. With the US economy set to slow again and the euro zone heading towards a break-up, external demand growth for Canadian exports will be soft, while commodity prices are likely to decline more noticeably. Canada's inflated housing market, which admittedly defied our expectations this year, is unlikely to do so well in 2012. More importantly, with underlying inflation already subdued and wage growth modest, we expect interest rates to remain low and for longer than the consensus view.