Country Forecast Canada February 2018 Updater

Country Forecast Canada February 2018 Updater

  • February 2018 •
  • Report ID: 5313159 •
  • Format: PDF


  • The Liberal Party has shifted politics to the left since its victory at the election in late 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 government will attempt to circumvent a hostile White House by strengthening diplomatic ties with other levels of the US government. A renegotiation of the North American Free-Trade Agreement (NAFTA) poses risks to the economy, but The Economist Intelligence Unit expects to see a revised agreement signed in 2018 that contains only modest changes.
  • The general government deficit, which includes provincial governments, will stand at 1.9% of GDP in 2018-19, before the 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 now added 75 basis points to its policy interest rate in the current tightening cycle. We believe that another increase by 75 basis points is likely in the period until end-2019. The BoC will be mindful of the high levels of household debt and the possibility of currency appreciation, which will prevent it from tightening more aggressively.
  • Consumer price inflation will accelerate slowly to an average of 1.9% 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 now slowing relative to the rip-roaring pace set in the first half of 2017. Consumers will gradually rein in their spending, which will result in growth moderating from an estimated 2.9% in 2017 to 2% in 2018 and 1.7% in 2019. 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 and broader improvement in the global economy. After a weak period in 2020, increases in commodity prices towards the end of the forecast period will enable an eventual 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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