Country Forecast Canada December 2017 Updater

Country Forecast Canada December 2017 Updater

  • December 2017 •
  • Report ID: 358881 •
  • Format: PDF


  • The Liberal Party has shifted politics to the left since its victory at the election in October 2015, which ended a decade of Conservative rule. But the two main opposition parties are now under new leadership, which will result in a stronger challenge to the Liberals' dominance of the political scene.
  • The Canadian government will attempt to circumvent a hostile White House by strengthening diplomatic ties to other levels of the US government. A 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 signed in 2018 that contains only modest changes that mostly benefit the US.
  • The general government deficit, which includes provincial governments, will stand at 1.9% of GDP in 2018-19, before a need to support a slowing economy in 2020 results in higher spending and a weaker tax take.
  • The Bank of Canada (BoC, the central bank) has removed the additional stimulus that it provided to the economy during the fall in oil prices in 2015-16. We believe that the BoC is likely to raise rates by a total of 100 basis points in 2018-19, but it will be mindful of the high levels of household debt, which will prevent a more aggressive pace of tightening.
  • Consumer price inflation will accelerate slowly to an average of 1.9% a year in 2018-19. Slack will gradually 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.
  • We expect economic growth to have accelerated in 2017 to 3%, from 1.5% in 2016, owing to strong consumer spending. Higher interest rates and debt burdens will cause private consumption growth to slow in 2018-19, and the broader outlook will darken in 2020, when we expect the US to enter a recession.
  • The Canadian dollar has lost value against the US dollar in the past two years, but has made some inroads following the BoC's policy shift. After a weak period in 2020, increases in commodity prices towards the end of the forecast period will enable a further appreciation.
  • The current account will remain in deficit in 2018-19. The US recession in 2020 will hit Canadian exports, pushing out the deficit again, but a quick recovery will feed export demand and enable a narrower shortfall in 2021-22.






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