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Canadian economy to avoid recession in 2020: Conference Board of Canada

OTTAWA, December 17, 2019 (GLOBE NEWSWIRE) Canada’s real GDP is forecast to expand by 1.8 per cent in 2020 and 1.9 per cent in 2021, underpinned by strong labour markets and modest growth in consumer spending. This, along with better prospects in the energy sector, will keep Canada’s economy out of recession.

Not without risks

2020 will see economic concerns carry-over from 2019. Uncertainty on the global trade front, tepid global economic growth, and disappointing non-resource business investment in Canada will persist.

Slowing global growth will challenge Canada’s trade sector especially with the U.S., Canada’s biggest export market. A weaker U.S. economic outlook does not bode well for Canadian exports, particularly for non-energy sectors that rely heavily on global demand. As a result, non-energy exports are expected to expand by a modest 1.2 per cent in 2020 and 1.9 per cent in 2021. The closure of GM’s motor vehicle assembly plant in Oshawa on December 20, 2019 will be felt, as vehicles and parts are Canada’s largest non-energy export sector.

Non-resource business investment continues to disappoint. From 2014 to 2018, real non-resource investment shrank by $2.7 billion, with a further decline of 0.1 per cent estimated for 2019. Although growth is projected to return in 2020, it will not be enough to turn the tide. The value of capital stock per worker has now fallen for four straight years and is set to fall again in 2020.

Drawing from strengths

Many factors are having a positive impact on the Canadian economy right now. Labour market conditions remain tight, and that is pushing up wages. Better income growth is leading to a more upbeat outlook for consumer spending. A recovery in resale housing markets and a long-awaited rebound in energy sector investment is also occurring.

An extraordinary 400,000 new jobs since the beginning of the year has led to two important side effects—a boost in the labour force participation rate, and accelerating wage growth (as firms pay more to compete for workers).

Housing starts increased in 2019, and Canada’s average resale price rose 5.4 per cent in the third quarter. The momentum will persist in 2020, resulting in a nearly 8 per cent annual gain. But slower 3.2 per cent price growth is our call for 2021.

Public spending

Insights from Matthew Stewart, Director, National Forecast

“While economic growth will remain modest this year, there is little capacity for government to boost growth. The newly elected minority government is set to cut taxes and boost spending, but this will be overshadowed by provincial governments who largely remain in cost cutting mode. The fact that federal and provincial governments are running significant deficits when the economy is operating near its full potential creates the risk that deficits will balloon when the economy finally experiences a recession in the years ahead.” 

Key findings

  • Real GDP is forecast to expand by 1.8 per cent in 2020 and 1.9 per cent in 2021. This is up slightly from 2019’s 1.7 per cent gain.
  • Canada’s trade sector will continue to be challenged by weak global growth.
  • Business investment has been dismal over the past few years. But prospects for energy investment are looking much more promising, thanks to improvements in energy takeaway capacity. And the outlook for the non-energy side remains moderate.
  • Canada’s economy will be supported by strong labour markets and modest growth in consumer spending.
  • While most provincial governments are expected to maintain a high degree of spending restraint as they work to balance their books, at the federal level the newly re-elected Liberal government is expected to increase spending and reduce taxes.
  • With global economic conditions stabilizing, we think the Bank of Canada will make no changes to interest rates in 2020.

About the Report

The report examines the medium-term economic outlook for Canada—all major components including consumer expenditures, housing, government, non-energy business investment and trade. The outlook for the financial, labour and energy markets is also given along with costs and prices. The Canadian Outlook is updated each quarter using the Conference Board’s large econometric model of the Canadian economy. The full report is a subscription product available to subscribers here and available to purchase here Media see below.

About The Conference Board of Canada

We are Canada’s largest independent, not-for-profit applied research organization. We deliver insights and analysis in the areas of Canadian Economics, Global Trade, Health, Education & Skills, Energy & Environment, Immigration, Indigenous & Northern Communities, Innovation & Technology, Human Resources, and Inclusion. We equip leaders to solve Canada’s toughest challenges.


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