Canadian economy headed for solid, albeit slower 2018

Canadian economy headed for solid, albeit slower 2018 In spite of looming concerns over U.S. imposed tariffs, the Canadian economy is gaining momentum, according to the latest RBC Economic Outlook Report. After a sluggish second half of 2017 and weak Q1 2018, the economy has strengthened and could be on the upswing for the remainder of 2018, the report contents. An increase in consumer spending, wage growth and business investment have all contributed to positive signs for Canada. While not nearing the 3.0 per cent growth pace of 2017, RBC Economics expects real gross domestic product (GDP) to average 2.0 per cent in 2018, followed by a slight slowing to 1.8 per cent in 2019. “Our baseline view is that Canada’s economy will grow at a mildly faster clip in the remaining quarters of 2018,” explained Craig Wright, Senior Vice-President and Chief Economist, RBC. “Financial condi- tions remain solid and the labour market is healthy. Wage growth continues to accelerate and it will blunt the impact that rising interest rates will have on house- hold debt service costs.”

So far, the impact of U.S. imposed tariffs to Canada’s steel and aluminum industries, which only account for 0.5 percent per cent of Canadian GDP and jobs, has been relatively small. Fears over trade and the slow pace of NAFTA negotiations have also not dissuaded Canada’s companies from using their capital this year.

RBC reports they expect business spending to rise by 6.3 per cent in 2018, while the outlook in 2019 is for a slower2.1 per cent lift. RBC also forecasts that the Canadian dollar is likely to hover at its current trading range of 0.77 cents in 2018. In spite of rising oil prices, a recent widening in short-term interest rate differentials with the U.S. and concerns over trade negotiations have weighed heavily on the Canadian currency’s trajectory. Further protectionist policies from the Trump administration could lead to trouble down the road for the Canadian dollar, adds RBC.

All 10 provinces will likely see the pace of economic growth slow compared with last year. Canada’s western provinces are forecasted to lead in economic growth throughout 2018. BC, Alberta and Sas- katchewan are each expected to rise 2.4 per cent in this year — well ahead of the national average.BC and Alberta have both been boosted by impressive job growth numbers. Prospects in Saskatchewan also remain above-average, buoyed by positive returns in potash production and agriculture. Ontario’s economic outlook should remain close to the national average of 2.0 per cent. With the job market on solid ground, firms are using capital invest- ment to boost output. However, Ontario’s symbiotic trading relationship with the U.S. means that uncertainty around NAFTA could throw a wrench in future investment plans. In Quebec, the economy is expected to slow to 2.1 per cent 2018 following an impressive 2017. RBC expects that the Quebec labour force will remain fully em-ployed throughout 2018.