Canada to Have One of the Fastest Growing Developed Economies This Year

OTTAWA, Sept. 21, 2017 /CNW/ - With strong economic growth in the first half of the year, the Canadian economy is expected to grow by an impressive 3.1 per cent in 2017, according to The Conference Board of Canada'sCanadian Outlook Bulletin: Autumn 2017.

"Canada's economy continues to perform well above potential and is on track to outperform most other developed economies by a sizable margin," said Matthew Stewart, Director, National Forecasting, The Conference Board of Canada. "However, the recent pace of expansion is unsustainable and economic growth will slow over the second half of this year and into 2018."

Highlights

• The Conference of Canada expects the Canadian economy to grow by an impressive 3.1 per cent in 2017.
• Employment is forecast to grow by 1.5 per cent this year, the strongest annual growth since 2007.
• Although the level of business investment remains depressed, real investment will post its first increase in three years in 2017.

Strong consumer spending is fueling much of Canada's stellar growth this year. The labour market has been hot in Canada with employment surging out of the gate in 2017 and continuing its strong performance into August. The economy has added 219,100 jobs so far this year—140,200 of which are full-time. Overall, employment is forecast to grow by 1.5 per cent this year, the strongest annual growth since 2007.

The improved employment landscape has boosted consumer optimism supporting consumption in the first half of the year. For each of the first two quarters of the year, consumption grew at an annual pace of over 4.5 per cent. With debt levels already at near-record highs, consumer spending will need to be better aligned with income growth going forward. In addition, cooling home prices will contribute to slower consumer spending.

Despite strong job creation, average wage growth has been anemic over the first half of the year. Overall, wage growth of only 1.4 per cent is expected for the year. With debt levels already at near-record highs, consumer spending will need to slow to remain in line with income growth going forward and, as a result, growth in consumer spending is forecast to slow to a 2.2 per cent pace next year.

Business investment is finally picking up and expected to make a solid contribution to economic growth this year. After declining by 19.2 per cent over the last two years, real business investment is expected to increase by 1.3 per cent in 2017. The big driver of the turnaround in investment is increased spending by companies on machinery and equipment (M&E) to expand their productive capacity. While the increase in business investment is good news the level of spending remains well below its previous highs and one of the key reasons why a slowdown in economic growth is projected next year.  

Trade is expected to be a weak spot in Canada's outlook. Although Canada's export volumes expanded at a solid pace in the second quarter of 2017, a sharp appreciation of the Canadian dollar in the third quarter will cut into the sector's performance for the rest of the year. For the year as a whole, exports are expected to increase by 2.3 per cent, fuelled mainly by soaring energy exports.

The fast pace of economic growth over the past few quarters has absorbed much of Canada's excess capacity. The economy is expected to be operating at full capacity before the end of the year, necessitating a steady withdrawal of the economic stimulus put in place over the past 10 years. The Bank is set to continue to remove monetary stimulus, hiking rates again later this year. After that increase, the Bank is expected to pause temporarily to evaluate how the economy is reacting to higher interest rates before raising rates again in 2018.

In 2018, economic growth is forecast to slow to a 2 per cent pace reflecting slower consumer spending and a decline in residential investment.

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SOURCE Conference Board of Canada