Demand Looks a Little Different in Recovery Economy: Canada’s Aggregate Demand Outlook to 2040

This annual economic forecast presents Canada’s long-term aggregate demand outlook.

Document Highlights

• An aging Canadian population means changing consumption patterns. Services will start to make up a larger share of people’s spending.
• Pent-up demand and low interest rates have lifted residential housing markets. But downside risks remain, including soft employment, the tapering of supportive government and corporate measures, continued weakness in oil prices, and the second wave of the COVID-19 pandemic. Many of these threats should dissipate in 2021, but housing markets will remain on edge.
• We expect residential investment to rise gradually over the long term. Renovation spending will see the fastest growth, but ownership transfer costs will also edge higher. By 2040, we expect renovation spending to be up 68 per cent and ownership transfer costs to rise 45 per cent from their 2020 values.
• With resource prices unlikely to return to their previous highs, we expect non-resource investment to grow at a slightly quicker pace.
• As stimulus programs wane, governments will shift toward trying to improve their balance sheets. We expect governments to then contribute less to the economy, at least until the federal fiscal situation improves.
• Growth in government spending will be significantly slower than in the recent pre-COVID-19 years, averaging 3.3 per cent per year from 2021 to 2031. As a share of GDP, spending is expected to fall to 24.8 per cent in 2025 but to rise to nearly 26 per cent by 2040.
• The United States will remain Canada’s largest trading partner. The U.S. economy is forecast to expand steadily throughout the long term, with real GDP averaging around 1.8 per cent between 2020 and 2040.
• Canadian businesses will need to continue to improve labour productivity if they are to remain competitive in the global market. Imports of machinery and equipment will remain solid throughout the forecast.