A marked improvement in the Canadian economic outlook is underway, as NAFTA-related uncertainty falls and the massive Kitimat LNG plant is set to raise growth as of next year, says a new report by Scotiabank Economics.
“The still-strong global and U.S. economies are helping the Canadian economy rotate away from consumption and housing to investment and exports,” said the report which was released on Monday. “Capacity constraints are serious, prompting Canadian firms to invest in spite of what many characterize to be a challenging business climate. Labour shortages are acute, even though wages aren’t fully reflecting this.
“With capacity constraints limiting firms’ abilities to expand and growth expected to be above potential this year and next, inflationary pressures are on the rise. We expect the Bank of Canada will raise interest rates by 150 basis points by 2020 Q1, to the midpoint of what it considers to be the range for neutral interest rates. While risks associated with the elimination of NAFTA and tariffs on Canadian-made autos now gone, risks of a trade war between China and the U.S. are rising. This poses a material threat to the Canadian outlook, though we expect an orderly resolution of the current dispute.”
The bank said economic growth in Canada is expected to accelerate from 2.1 per cent in 2018 to 2.2 per cent in 2019 before slowing modestly to 1.8 per cent in 2020.
“Robust demand from the U.S. and a spike in energy products shipments are leading to a rapid rebound in export growth so far this year. Exports to the U.S. were also supported by a front-loading of steel and aluminum products — which grew by an annualized rate of over 40 per cent quarter over quarter in nominal terms — ahead of tariffs imposed on June 1 on imports of these goods from Canada,” said the report.
“Outbound trade likely softened in the third quarter as temporary tariff-related effects faded, though remains strong owing to vigorous growth in the U.S. and the solid, though softening, global economic expansion. We anticipate that the U.S. economy will continue to support strong growth in Canadian goods and services exports, which we forecast at 3.1 per cent in 2018 and 3.6 per cent in 2019 before slowing to 2.2 per cent in 2020 as U.S. economic growth reverts closer to its long-run potential.”
Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald, including 12 years as a senior business writer.
The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.
