Canada

Canada - Economic forecast summary (November 2017)

 

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Strong economic growth in the first half of 2017 is set to ease in coming quarters. Growth has been led by household consumption, which should slow as rapid job growth and wealth effects from house price appreciation abate. Earlier robust export increases have weakened substantially, in part because of the stronger Canadian dollar. Consumer price inflation is expected to reach 2% in 2019, as remaining spare capacity is exhausted and exchange rate effects dissipate.

Interest rate rises this year have reduced monetary stimulus. Additional increases are projected in order to stabilise inflation around the midpoint of the 1-3% official target range. Mildly expansionary fiscal policy has supported growth in 2016 and 2017, hastening the economy’s return to full employment. However, delays have limited the benefits from planned increases in infrastructure spending. Modest fiscal tightening is projected in 2019, consistent with an absence of spare capacity at that stage of the cycle.

High house prices and associated debt levels remain a substantial financial vulnerability. A disorderly correction would adversely impact growth and could threaten financial stability. The federal government has responded with a number of macro-prudential measures. Provincial government measures have also temporarily slowed house price growth, but some – notably Ontario's expanded rent controls – risk discouraging the supply of new housing. Macro-prudential policies will need to be tightened further if rapid increases in house prices and debt resume.

 

 

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Other information

Economic Survey of Canada(survey page)

 

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