Country Forecast Canada July 2018 Updater

Country Forecast Canada July 2018 Updater

  • July 2018 •
  • Report ID: 1697917 •
  • Format: PDF


  • The Liberal Party has shifted politics to the left since its victory at the election in late 2015. For most of its term it has been broadly popular, but its ratings are currently in decline. With the two main opposition parties under new leadership, the Liberals' dominance of the political scene will be challenged more strongly in 2018-19.
  • A US-led renegotiation of the North American Free-Trade Agreement (NAFTA) poses huge risks to the economy, but The Economist Intelligence Unit expects to see a revised agreement in the second half of 2018 that contains only modest changes.
  • The Bank of Canada (BoC, the central bank) has added 75 basis points to its policy interest rate since July 2017. We believe that it will add another 25 basis points in 2018, followed by two rate rises in 2019. The BoC will be mindful of the high levels of household debt and the possibility of currency appreciation, but increased oil prices will tilt the balance of risks towards more rate increases.
  • Consumer price inflation will accelerate to an average of 2.2% a year in 2018-19. Slack will disappear from the labour market but commodity prices will remain low. Inflationary pressure will ease in 2020 in line with the weakening of the economy, before gradually re-emerging in 2021-22.
  • Economic growth is slowing relative to the fast pace set in the first half of 2017. Consumers will gradually rein in their spending, which will result in growth moderating from 3% in 2017 to 2.1% in 2018 and 1.8% in 2019. The broader outlook will darken in 2020, when we expect the US to enter a recession.
  • The Canadian dollar lost value against the US dollar in 2015-16, but has made some inroads following the BoC's policy shift, the rise in oil prices and broader improvements in the global economy. After a weak period in 2020, increases in oil prices towards the end of the forecast period will enable an eventual appreciation.
  • The current-account deficit will remain wide in 2018, at 2.4%, before narrowing gradually as a share of GDP over the remainder of the forecast period.


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