Dubai: The Canadian economy is humming along as the country nears its 150th birthday, according to the latest outlook reports from The Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF) and a recent report from Royal Bank of Canada (RBC).
Canada’s gross domestic product (GDP) is projected to grow by 2.8 per cent during 2017, double last year’s pace, according to OECD. The Paris-based think tank believes that Canada’s economy is growing so fast the country might soon have full employment.
The IMF, following its latest Article IV Consultation with the Canadian government, has concluded that the economy has regained momentum, supported by expansionary fiscal and monetary policies, but complex adjustments are still at play. The IMF projects 2.5 per cent GDP growth for 2017.
Continuing an eight-year trend, consumers are expected to provide a large lift to the economy in 2017. With business investment on the rise and government spending on infrastructure ramping up, RBC Economics projects the economy will grow at nearly double the average pace of the past two years.
“Canada’s economy is on track to post its strongest gain in three years. While we don’t discount the risk of a slowdown resulting from the pending renegotiation of NAFTA or the expected cooling of the housing market, we remain confident the economy will continue to grow at an above-potential pace for the remainder of this year,” said RBC report.
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Despite some worries on housing markets, economic growth is projected to increase in 2017, driven by expansionary fiscal policy, household wealth gains and a resumption in business investment, in particular in the resource sector following the rebound in commodity prices.
The OECD expects growth to ease somewhat in 2018, but remain robust, as government spending increases taper off. Consumer price inflation is expected to rise to above 2 per cent in late 2018 as excess capacity is gradually eliminated and wage growth picks up. The federal government’s mildly expansionary fiscal stance is expected to hasten the economy’s return to full employment.
“A gradual removal of monetary stimulus from late 2017 is projected, in order to stabilise inflation at around the 2 per cent mid-point of the official target range. Higher interest rates will take some of the wind out of booming housing markets and rapidly rising house prices,” the OECD said its latest outlook report on Canada.
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Last year Canada’s GDP growth strengthened to 1.4 per cent, up from 0.9 per cent in 2015, in a volatile year marked by the devastation of the Fort McMurray wildfires. Personal consumption was robust as employment growth accelerated to 1.3 per cent, the fastest annual job growth since mid-2013.
“The recovery is expected to gain momentum in the near term, supported by a fast-growing US economy, expansionary fiscal and monetary policies, and stable oil prices. GDP growth is projected to rise to 2.5 per cent in 2017 and 1.9 per cent in 2018, allowing the negative output gap of 1 per cent of GDP to close in the first half of 2018,” said the IMF report.
The medium-term outlook of Canada, according to the IMF, is less upbeat because of structural impediments. As the fiscal stimulus fades and the US economy returns to lacklustre trend, low labour productivity growth and population ageing will limit potential growth.
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According to the IMF, addressing the complex adjustments that are taking place will require policy coordination on several fronts: accommodative fiscal and monetary policy, tight macroprudential policy, and bold action on trade and structural reform.
Maintaining fiscal discipline will be important to keep funding costs low and to rebuild buffers. “The government’s commitment to set debt-to-GDP on a declining path is welcome. Once the economy stabilises around its potential, reinstating a fiscal rule to anchor the medium-term fiscal framework would help ensure the sustainability of public finances,” the IMF said.
