Canadian Outlook Economic Forecast
This quarterly economic forecast provides highlights of the Canadian Outlook report, which presents the short-term national outlook.
- Although the economy performed well in the second quarter of 2018, growth will slow over the remainder of the year and into 2019.
- The Canadian economy is projected to grow by 2.0 per cent in 2018 as a whole before slowing to 1.8 per cent in 2019.
- Concerns over trade negotiations, carbon taxes, and a perception that Canada’s tax competitiveness has been eroded are hurting the willingness of firms to increase their capital spending.
- A shortage of pipeline capacity has limited our ability to take advantage of higher world oil prices. The outlook for oil investment remains bleak.
- Despite strong demand from the U.S., high capacity utilization in manufacturing is limiting our ability to increase our exports.
- The economic acceleration in the second quarter took a significant chunk out of the economy’s excess capacity. Consequently, we expect the Bank of Canada to raise its policy rate again in October and three times more in 2019.
- After a year of impressive economic growth, Canada’s economy is set to slow to a more sustainable pace in 2018.
- We expect real GDP to grow by 1.9 per cent in 2018, down from 3.0 per cent growth last year.
- High debt levels, rising interest rates, and slower employment gains will result in slower growth in consumer spending.
- The trade sector will subtract from economic growth, as non-energy exports continue to perform poorly.
- Businesses remain hesitant to invest. The level of investment in plant and equipment is expected to remain well below the recent high seen in 2014.
Canadian Outlook Bulletin
This briefing provides highlights of our quarterly Canadian Outlook report, which presents the short-term national outlook.
- High debt levels, rising interest rates, and falling house prices are leading to a pullback in the pace of consumer spending and overall economic growth.
- Canada’s export sector will remain on shaky ground over the near term as rising protectionist measures from the U.S., and continued uncertainty surrounding the outcome of the NAFTA renegotiations, dominate and undermine the sector’s outlook.
- Despite the pickup in inflation and wages since the beginning of this year, the Bank of Canada will remain cautious, as it gradually reduces monetary stimulus from the economy over the near term.
Canadian Outlook Long-Term Economic Forecast
This annual economic forecast presents the long-term national outlook. The U.S. economic outlook is presented in a separate section.
Following a year of stunning gains, Canadian economic growth is projected to sink back below 2 per cent in 2018. Growth is unlikely to exceed 2 per cent again within the foreseeable future.
After falling almost 20 per cent over the last two years, business investment eked out a small increase in 2017. Further increases will likely be moderate. As such, total business investment is unlikely to return to its 2014 highs until the middle of the next decade.
Household consumption has been driving the economy’s recent strong performance, but consumers’ ability to spend will lessen over the next several years due to high consumer debt levels, a cooling housing market, and slowing employment growth.
Given the recent weakness in business investment and the above-potential growth over the last year, the economy is butting up against capacity constraints. We expect the economy to be operating at close to full potential next year. After that, economic growth will be constrained by weak potential output growth.
The withdrawal of the baby boomers from the workforce over the forecast will increase the retirement rate, put downward pressure on the participation rate, and result in slower potential output growth.