READ full country note (PDF)
Economic growth is projected to increase to 2.3% in 2018. As contraction in the resources sector slows, activity in the rest of the economy is projected to strengthen. Non-energy exports should continue to benefit from stronger export market growth and earlier exchange rate depreciation. Consumer price inflation should pick up to around 2% as the effect of falling energy prices fades and excess capacity is gradually eliminated.
The moderately expansionary policy stance in the 2016 federal budget will help to speed the economy’s return to full employment. It also increases scope to raise interest rates, which would mitigate financial stability risks arising from high and rising house prices and household debt. A gradual removal of monetary stimulus is projected from late 2017 to stabilise inflation at around the 2% midpoint of the official target range. Macro-prudential measures have been strengthened recently, but may need to be tightened further and targeted regionally to reduce financial stability risks.
The federal government used the fiscal space created by lower interest rates in its 2016 budget. New measures increase the budget deficit by 0.6-0.7% of GDP in 2016-17 and a further 0.3% of GDP in 2018-19. The deficit increase reflects higher spending on physical infrastructure, social housing, education and innovation. The increase in spending on social housing will make growth more inclusive, as will the new Canada Child Benefit, which is means tested, and measures to foster Indigenous Peoples’ economic development and to make post-secondary education more affordable for students from low-income families. Provinces do not have the fiscal space to loosen their fiscal stance.
Economic Survey of Canada(survey page)