Growth to continue in 2022, but pandemic and geopolitical uncertainties bring considerable risk to Canadian economy

Ottawa, April 12, 2022 – The Conference Board of Canada has released its two-year economic outlook, and forecasts real gross domestic product (GDP) growth of 4.0 per cent this year, easing to 3.3 per cent in 2023. The outlook for overall growth is essentially unchanged from our Winter Economic Outlook released in January.

“Although restrictions are being gradually removed at varying rates across Canada, Omicron’s BA.2 sub-variant is on the rise, indicating the pandemic is likely not finished yet,” said Ted Mallett, Director, Economic Forecasting, The Conference Board of Canada. “Adding to this uncertainty, the Russian invasion of Ukraine brings plenty of future risks and unknowns to our outlook.”

According to The Conference Board of Canada, the commodity price surge created by Russia’s actions will have numerous effects on the Canadian economy. The sharp rise in oil and gas prices is boosting the bottom lines of Canadian producers and government tax and royalty revenues. Similarly, grain and oilseed prices have spiked because of concerns that Russian and Ukrainian production will be down substantially this year. The forecast is based on the assumption that sanctions on Russia will endure through the medium term, keeping resource prices up. The war will further strain global supply chains and high oil prices will keep transportation costs elevated, putting upward price pressure on internationally traded goods. Although these were issues before the war, The Conference Board of Canada expects them to persist.

Consumer prices rose 5.7 per cent year-over-year in February, the largest gain since August 1991, and inflation is expected to accelerate due to the war in Ukraine. The Bank of Canada is expected to increase the interest rate four times in 2022. After its initial increase of 25 basis-points in March, the Bank is set to increase rates again in April, followed by additional 25-basis-point increases in July and October. Still, price pressures are already in play and The Conference Board of Canada expects inflation to average 5.5 per cent this year, a 31-year record. Inflation is forecast to settle in at 2.6 per cent in 2023 as supply-chain pressures ease and commodity prices come off their peaks.

Omicron-related closures resulted in job losses at the start of this year, but employment rebounded in February. After a tumultuous start, The Conference Board of Canada expects the Canadian economy to add nearly 700,000 jobs in 2022, underpinned by gains in the commercial service industries. Impressive job growth in February allowed the labour market to reach a milestone of 19.5 million employed and the unemployment rate fell to 5.5 per cent—a near record low. However, not all is rosy on the labour front as record-low unemployment and a massive number of job vacancies are holding back production in many regions and industries in Canada.

Canada’s export sector stalled to begin the year, but solid resource prices, increasing global demand and a rebound in service exports point to a solid performance in 2022. While supply chain issues will continue to linger beyond the short term, the impacts are not expected to be as crippling for some sectors as they were last year. Exporters will be in a good position to finally take advantage of the solid demand from the United States over the next two years.

The Conference Board of Canada expects the war in Ukraine to remain within those borders but is revising its global growth forecast for 2022 from 4.0 to 3.5 per cent. The balance of risk remains on the downside.

The Conference Board of Canada expects real GDP in the United States to expand 3.6 per cent in 2022 and 2.8 per cent in 2023. A serious downside risk to this forecast is if the U.S. Federal Reserve is unable to contain inflation. The war has added to inflationary pressures and the Fed is expected to quickly tighten monetary policy to prevent a 1970s-style wage-price spiral.

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