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Canadian Outlook Long-Term Economic Forecast: 2018 The Conference Board of Canada, 220 pages, January 25, 2018 Report

Canadian Outlook Long-Term Economic Forecast: 2018

The Conference Board of Canada, 220 pages, January 25, 2018
Report

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This annual economic forecast presents the long-term national outlook. The U.S. economic outlook is presented in a separate section. Document Highlights 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. Table of Contents EXECUTIVE SUMMARY Chapter 1—U.S. Outlook Overview Assumptions Aggregate Demand Chapter 2—Demographics Rapid Aging of Canada’s Population Shapes Demographic Outlook Baby Boomers Driving Demographic Change Population Aging: Not Exclusive to Canada Components of Population Growth Chapter 3—Monetary Policy Slow Road to Monetary Policy Normalization The Goal of Monetary Policy Adoption of the Inflation Control Target Monetary Policy in the Era of Price Stability Real Interest Rates Nominal Interest Rates The Canadian Dollar Chapter 4—Fiscal Policy No Quick Fix for Budget Woes Historical Perspective Federal Forecast Provincial Outlook Municipal Governments Canada’s Social Safety Net Health Care Spending Pressures Mount Education Social Assistance Public Pension and Old Age Security Programs Employment Insurance Chapter 5—Energy Changing Global Environment Hurting Long-Term Outlook for Energy Sector Long-Term Global Energy Outlook Oil Markets Natural Gas Investment Production Trade Chapter 6—Labour Markets Population Aging Drives Labour Market Trends Generations in Canada Baby Boomers Delay Retirement Echo Boomers and Millennials Stand to Benefit The Changing Face of the Labour Force Labour Force Growth and Participation Key Labour Market Outcomes Productivity Natural Rate of Unemployment The Changing Shape of Work in Canada The Role of Business Cycles—A Historical Perspective Chapter 7—Potential Output Potential Output Growth Set to Slow Modest Long-Term Growth for Potential Output Gap Closure and Its Implications Chapter 8—Aggregate Demand Consumption Housing Business Investment Engineering Investment Government Spending International Trade Appendix A—Forecast Tables

This annual economic forecast presents the long-term national outlook. The U.S. economic outlook is presented in a separate section.

Document Highlights

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.

EXECUTIVE SUMMARY

Chapter 1—U.S. Outlook

Overview
Assumptions
Aggregate Demand

Chapter 2—Demographics

Rapid Aging of Canada’s Population Shapes Demographic Outlook
Baby Boomers Driving Demographic Change
Population Aging: Not Exclusive to Canada
Components of Population Growth

Chapter 3—Monetary Policy

Slow Road to Monetary Policy Normalization
The Goal of Monetary Policy
Adoption of the Inflation Control Target
Monetary Policy in the Era of Price Stability
Real Interest Rates
Nominal Interest Rates
The Canadian Dollar

Chapter 4—Fiscal Policy

No Quick Fix for Budget Woes
Historical Perspective
Federal Forecast
Provincial Outlook
Municipal Governments
Canada’s Social Safety Net
Health Care Spending Pressures Mount
Education
Social Assistance
Public Pension and Old Age Security Programs
Employment Insurance

Chapter 5—Energy

Changing Global Environment Hurting Long-Term Outlook for Energy Sector
Long-Term Global Energy Outlook
Oil Markets
Natural Gas
Investment
Production
Trade

Chapter 6—Labour Markets

Population Aging Drives Labour Market Trends
Generations in Canada
Baby Boomers Delay Retirement
Echo Boomers and Millennials Stand to Benefit
The Changing Face of the Labour Force
Labour Force Growth and Participation
Key Labour Market Outcomes
Productivity
Natural Rate of Unemployment
The Changing Shape of Work in Canada
The Role of Business Cycles—A Historical Perspective

Chapter 7—Potential Output

Potential Output Growth Set to Slow
Modest Long-Term Growth for Potential Output
Gap Closure and Its Implications

Chapter 8—Aggregate Demand

Consumption
Housing
Business Investment
Engineering Investment
Government Spending
International Trade

Appendix A—Forecast Tables

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