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Conference Board of Canada Upgrades Canada’s Economic Growth Forecast

July 13, 2017

The Conference Board of Canada’s Associate Director, National Forecast, Matthew Stewart offers the following perspectives/insights:

Quote

“The Canadian economy has shifted into high gear, thanks to strong household spending and strong home construction. However, Canada’s current rate of expansion is unlikely to last, with growth expected to fall back below 2 per cent in 2018.”

Matthew Stewart
Associate Director
National Forecast

Insights

  • Given the solid start to the year, The Conference Board of Canada expects the Canadian economy to grow by 2.6 per cent this year, before slowing to 1.9 per cent in 2018.
  • Household spending is one of the main drivers of this year’s strong economic performance. Consumer spending is set to grow by a strong 2.9 per cent in 2017—the fastest increase in seven years. Next year, however, elevated debt levels, slowing job growth, and easing house prices will take some of the steam out of consumer spending.
  • The story is similar in the housing market. Driven by strong housing starts which are expected to hit a five-year high this year, residential investment will rise by almost 5 per cent, but decline next year as starts ease to a level more in line with demographic needs.
  • With consumer spending and residential investment expected to slow, the economy will depend on stronger business investment and exports to fuel growth.
  • The bounce back in business investment in the first quarter of 2017 was certainly good news, and provides some evidence that the economic recovery is broadening across sectors. Meanwhile, the trade sector has also seen a pickup in non-energy exports suggesting export growth is likely to be stronger in the year ahead.
  • Despite the good news on these fronts, the level of total investment remains well below recent highs and this will impact the rate of growth we can sustain beyond this year. There is also there is a risk that protectionist trade policies south of the border will push down our forecast for exports.
  • Between the commitments made in the last two federal budgets, and in Canada’s recently released defence policy, federal spending is set to increase rapidly over the next few years. Half of the provinces have now balanced their budgets and have the fiscal capacity to increase spending allowing the government sector to make a notable contribution to growth.
  • The last few quarters of well-above potential growth have absorbed much of our excess economic capacity and the Bank of Canada is expected to continue its policy of tightening to avoid overshooting its inflation target. We expect another rate increase in October and two more in 2018.

 


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Photo of Craig Alexander Craig Alexander
Senior Vice-President and Chief Economist

Craig Alexander brings over 19 years of experience in the private sector as an economic and financial forecaster to the position of Senior Vice President and Chief Economist. He oversees the Board’s macro-economic outlook products, custom economic and tourism research.

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