Canadian Outlook

Updated: October 25, 2021 | Français

Canada’s Road to Recovery: Traffic Easing, but Speed Bumps Ahead

The Canadian economy contracted by 0.3 per cent in the second quarter, due largely to a sharp 4.0 per cent downturn in real exports. The downshift has forced us to chop our forecast for real GDP growth in 2021 to 5.1 per cent.

Quarterly growth will fall back to near 4.5 per cent at annual rates through to the middle of next year as the economy picks up the remaining slack left by the recession. Prospects after that, however, are considerably dimmer as the economy comes to grips with high mortgage debt and the end of government income supports.

Contents of the Autumn 2021 edition:

Global and U.S. outlooks
Canada’s Business sector
Housing sector
Housing Markets Set to Cool
All Eyes on Fiscal Policy
Prices to Stabilize and Bank of Canada Still on Track to Increase Interest Rates in Late 2022

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Key findings

As labour markets come back to pre-pandemic strength, slow growth in the size of the working-age population will hamper economic potential after 2023, even with full employment.

Canada’s economy has started to grow again after sputtering in the spring. Output growth is forecast at 5.1 per cent for 2021 and 4.4 per cent for 2022. High levels of consumer savings and government stimulus are still powering through the system but will soon begin to ease. Toward the end of next year, economic growth is expected to cool considerably.

In Canada and elsewhere, widespread production delays and cost increases have led to higher inflation. Impacts are temporary, but it will take another year before consumer price increases fall back to the Bank of Canada’s 2.0 per cent target.

Easing government stimulus measures will help reduce federal and provincial deficits, but the debt overhang a remains a long-term issue. Shorter term, our forecast reflects the September 20 election outcome, with no significant change to the direction of policy already signalled by the Liberal government. Minority governments, however, tend to add uncertainty to future program and spending plans.