Booming Economy Not Without Its Risks: Canada’s Two-Year Outlook

The Conference Board of Canada, 20 pages, July 6, 2021
Impact Paper
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This quarterly economic forecast provides highlights of the Canadian Outlook report, which presents the short-term national outlook.

Document Highlights

  • Canada’s economy will expand by 6.7 per cent this year and 4.4 per cent in 2022. This represents an upgrade from our spring update and partly reflects the generally successful rollout of vaccines that has led to a gradual reopening of the economy and a boost in confidence.
  • A sharp rebound in household spending over the near term is due to households starting to spend some of the huge savings built up over the course of 2020 and the first part of 2021. The composition of spending will change as households will spend less on goods and more on services like travel.
  • The Canadian economy has already recovered nearly 80 per cent of the jobs lost during the severe recession last year. But jobs for lower income Canadians remain well below pre-pandemic levels. This unwelcome development could persist through the medium term as some positions –for instance, in bars and restaurants – could be permanently lost.
  • In recent months, inflation surged well above the Bank of Canada’s 2.0 per cent target, mainly because of base effects and rising gasoline prices. The Bank contends that the recent increase in consumer prices will be transitory and, consequently, interest rates will remain on hold until the latter part of 2022 or the beginning of 2023. However, if the recent spike in inflation turns out to be more persistent, the Bank may be forced to respond and raise short-term interest rates sooner than expected.
  • The loonie is currently trading above the US$0.80 mark and should remain in this range through the medium term. We don’t expect the dollar to rise much further because world oil prices, while on the increase recently, are expected to settle at current levels of around US$70 to US$75 per barrel.
  • Large federal fiscal deficits will persist through the medium term although they will slowly decline. New spending initiatives – including the federal government’s plan to implement a national child care program – will maintain upward pressure on expenditures.

Table of Contents

Key findings
Global and U.S. outlooks
Business sector
Household sector
Housing market prospects are a national obsession
Budget 2021 brings more support
Interest rates on hold … for now
Appendix A—Methodology

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