Ottawa, October 6, 2021 – The Conference Board of Canada released its two-year economic outlook and forecasts that Canada’s real gross domestic product (GDP) will grow 5.1 per cent in 2021. Our projection for the year is down from previous estimates largely because the Canadian economy contracted by 0.3 per cent in the second quarter, mostly driven by a steep 4.0 per cent decrease in real exports.
“The unprecedented levels of pandemic stimulus measures are easing as social distancing restrictions have largely lifted across Canada, but the debt overhang remains a long-term issue,” says Ted Mallett, Director, Economic Forecasting at The Conference Board of Canada. “These critical income measures led to a federal deficit of $228 billion in 2020. While a rebound in revenues, as well as the easing of some major support measures led to an improvement in the deficit this year, the federal government has added massively to its debt in just two years.”
The GDP growth projection for 2022 is strong at 4.4 per cent but growth forecasts for 2023 and beyond are dim with annual gains of 1.6 to 1.7 per cent expected as stimulus effects wear off. While the near-term outlook is positive, COVID-19 variants remain a risk to the forecast in Canada and globally.
Vaccine distribution remains challenging in many countries, which has negatively impacted foreign consumption and investment in the second quarter of 2021. This has led to decreased demand for Canadian agricultural, mining, manufacturing, and energy products. The Conference Board of Canada anticipates exports to recover during the remainder of 2021 and into 2022.
The Conference Board of Canada projects households will dip into their savings accumulated throughout the course of the pandemic, driving an increase in consumer spending which will play a key role in economic recovery as government restrictions have largely shifted to proof-of-vaccination requirements which should allow for improved spending opportunities. We forecast that consumer outlays will increase by 4.8 per cent in real terms in 2021 and 5.9 per cent in 2022. Consumer confidence has been supported by the job growth that was realized throughout the summer. Employment growth is expected to average a robust 4.7 per cent in 2021 and 3.0 per cent in 2022, bringing the unemployment rate to around 6.0 per cent by mid-next year.
Looking beyond Canada’s borders, the global economy is recovering at a healthier rate this year following a steep 3.3 per cent drop in economic activity in 2020. This recovery was supported by China’s sharp rebound and the significant fiscal stimulus in the United States. However, the recovery globally has been uneven as the waves of the pandemic, varying policy support measures and differences in vaccine coverage have generated a divergence in economic growth. The Conference Board of Canada expects real GDP globally to expand 5.8 per cent this year and 4.4 per cent in 2022.
In the United States, the economy overall is showing positive signs. The Conference Board of Canada is forecasting that real GDP will expand by 5.9 per cent in 2021 and 4.1 per cent in 2022. While this should allow the economy to return to full employment by the end of next year or early 2023, the Delta variant which is having a major impact in southern states, is the key risk to our outlook for the country. The surge in inflation that began in the spring is a second concern and the degree to which the increase is transitory, as the U.S. Federal Reserve contends, or more permanent.
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