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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. In 2018, growth is likely to ease but remain robust, as government spending increases taper off. Consumer price inflation is expected to rise to above 2% in late 2018 as excess capacity is gradually eliminated and wage growth picks up.
The federal government’s mildly expansionary fiscal stance will hasten the economy’s return to full employment. Gradual removal of monetary stimulus from late 2017 is projected, in order to stabilise inflation at around the 2% 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. Nevertheless, macro-prudential measures, which were strengthened during 2016, should be tightened further to address economic and financial risks related to the housing market.
Recent increases in federal investment in physical infrastructure, social housing, education and innovation will improve Canada’s capacity to adjust to globalisation in an inclusive and efficient way. Adjustment pressures would be exacerbated in affected industries if the shift toward more protectionist trade policy in the United States continues. Adjustment capability would be enhanced by widening eligibility for active labour market measures and implementing systematic early needs assessment for all displaced workers. Initiatives to address the social problems of Canada’s Indigenous Peoples are also critical if growth is to be inclusive going forward.
Economic Survey of Canada(survey page)