Positive growth for Canadian economy but risks exist: report

Conference Board of Canada warns that NAFTA success is crucial to its projections

Mario ToneguzziThe Conference Board of Canada is painting a rosier picture for the Canadian economy this year.

On Thursday, the board released a report saying the national economy will rise by two per cent in 2018. That’s 0.2 percentage points better than its previous forecast.

But the report also said risks to the forecast are “substantial due to trade uncertainty.” It cautions that a collapse of the North American Free Trade Agreement would likely subtract 0.5 per cent from growth and there’s a broader risk if the U.S. and Canada increase tariffs. This could subtract as much as 1.3 per cent from Canada’s economic growth over a two-year period, according to the board’s Canadian Outlook: Autumn 2018.

“The Canadian economy performed well in the second quarter of 2018, with consumers increasing their pace of spending, businesses raising investment in their capital stock and a double digit increase in exports,” said Matthew Stewart, director of national forecast. “However, significant challenges remain, which will slow growth over the remainder of the year and into 2019.”

The report also said:

  • the Canadian economy will slow to 1.8 per cent growth in 2019;
  • the economic acceleration in the second quarter took a significant portion out of the economy’s excess capacity; consequently, the board expects the Bank of Canada will raise its interest rate in October and raise rates three times in 2019;
  • exports are expected to climb by about two per cent due to a weaker loonie and a strong U.S. economy.

“Energy exports are expected to continue to post strong gains. However, lower investment levels will eventually weigh on the sector’s growth prospects,” said the report.

“Meanwhile, employment growth has weakened significantly – the Conference Board expects the economy to add 213,000 jobs in 2018, compared to the 337,000 new positions created last year. While gains in average weekly wages have also slowed recently, wages are still expected to grow by a solid 3.1 per cent this year before weakening significantly next year. When combined with the high-level of household debt, real consumer spending is expected to advance at a slower pace than in recent years.”

The report also said that Canada’s housing markets will continue to cool through the second half of 2018, though a major correction is not in the cards.

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.


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