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Canada's Economic Growth to Be Tempered by Weakness in Business Investment and Exports

Weakness in export growth and lack of business investment will contribute to a weaker outlook for Canada’s economy in 2016. The Conference Board of Canada expects the Canadian economy to grow by just 1.3 per cent in 2016 before accelerating to 2 per cent next year.

Ottawa, October 27, 2016—Weakness in export growth and lack of business investment will contribute to a weaker outlook for Canada’s economy in 2016. The Conference Board of Canada expects the Canadian economy to grow by just 1.3 per cent in 2016 before accelerating to 2 per cent next year.

“Canada’s economic growth this year will barely be higher than last year’s 1.1 per cent, which was its worst showing since the 2009 recession,” said Matthew Stewart, Associate Director, National Forecast, The Conference Board of Canada. “Looking ahead, Canada will be lucky to see growth above 2 per cent over the next few years due the aging population, weak productivity growth and the persistent lack of business investment. A turnaround in business investment will be critical to support Canada’s future economic growth.”

Highlights

  • The Canadian economy is expected to grow by 1.3 per cent in 2016. Next year growth is expected to pick up to 2 per cent.
  • Business investment remains the weakest part of Canada’s economy. After declining by almost 7 per cent this year, business investment will grow by an average of just 2.2 per cent over the next two years.
  • Despite weak job gains and modest wage growth, consumer spending will be the main driver of growth this year.

Business investment remains the weakest part of Canada’s economy. While energy investment has been responsible for the majority of the recent decline, the lack of non-energy investment remains a serious issue. Business investment is expected to fall by almost 7 per cent in 2016 and manage only a modest recovery of 2.2 per cent in 2017.

Weaker U.S. growth, combined with production capacity constraints in some sectors, have weighed heavily on export activity this year. Total real exports are slated to expand by just 0.6 per cent in 2016. Looking ahead, the outlook for exports is expected to improve thanks to a stronger U.S. economy. However, a lack of investment and increased competition suggests growth will remain well below the average seen over the last five years.

Consumer spending, forecast to advance by 2.1 per cent this year, will be the main driver of growth in 2016. However, weak labour markets will weigh on households. The economy is expected to generate a paltry 107,000 new jobs in 2016, the worst annual employment performance since 2008–09. Although a modest rebound is expected in 2017, job creation is not anticipated to reach pre-recession levels over the course of the forecast period. Meanwhile, the unemployment rate is expected to decline 0.2 per cent over the next two years from its current level of 7 per cent. Moreover, the persistent slack in the labour market will keep wage growth modest through the medium term. This wage forecast, combined with high levels of consumer debt, will cut into household spending over the next few years.

While the weakness in the rest of the economy has not yet extended to the housing sector, the Conference Board expects it to gradually cool. We expect national average price growth to slow and housing starts to diminish, especially in the wake of the mortgage regulation changes.

Economic growth will strengthen in 2017 on the back of government infrastructure investment, some additional private sector investment and gradually improving export volumes—all of which will be underpinned by continued moderate consumer spending.

The Canadian Outlook: Autumn 2016 is available from the Conference Board’s e-Library.


For more information contact

Corporate Communications
613-526-3280
corpcomm@conferenceboard.ca


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