Sunday, December 15, 2019Canada's Leading Online Business Magazine

Canada’s Encouraging Economic Growth Outlook

By Angus Gillespie

As we navigate our through the fall season there are a number of reasons for Canadian businesses and workers to feel extremely optimistic about the path the country is taking in terms of economic activity and growth patterns heading into next year.

Just recently the Organization for Economic Co-operation and Development (OECED) raised its expectations for economic growth in this country compared with its previous forecast at the beginning of the summer.

The Paris-based economic think tank says it now expects the Canadian economy to grow by 3.2%, which would be the best of any of the G7 nations. The forecast in June was for a 2.8% increase. The outlook for 2018 remains steady at 2.3% growth.

It’s a solid boost in the arm for Canada, with such lofty expectations coming from a highly-regarded international organization such as the OECD.

The OECD defines itself as a forum of countries committed to democracy and the market economy, providing a setting to compare policy experiences, seek answers to common problems, identify good practices, and co-ordinate domestic and international policies.

The International Monetary Fund shares in the OECD’s optimism for Canada, expecting our country to lead the G7 for economic growth this year. The IMF sees the Canadian economy growing at an overall rate of 2.5% this year, which is up from its 1.9% predication in April.

With a current population of about 34 million, Canada is largely dependent on exports for economic prosperity. The country routinely ranks near the top in a number of business sectors including advanced and traditional manufacturing, agriculture, education, energy and resources, finance, healthcare and strong environmental policies.

As a major exporting nation, manufacturing remains critically important to the economy and on a macro level, the developing and the advanced world. Job losses to cheaper jurisdictions such as Mexico remain a concern, most notably the automotive sector. In previous interviews with Unifor President Jerry Dias, he made it abundantly clear that he would continue to negotiate and fight long and hard to ensure high-paying jobs remain here in Canada.

While the prospects for Canada’s economic growth look strong, there are troubling areas that will need to be closely monitored. Topping that list is the housing industry. Prices throughout much of 2016 and the early part of 2017 were hurting the middle class, with housing prices skyrocketing, largely due to foreign speculators looking to turn profits. Cold water was put on that scheme in both Ontario and British Columbia. The new provincial government regulations of placing a heavy foreign tax on such transactions definitely cooled the market considerably and what had been a year of runaway housing prices finally resulted in stability, and sensibility.

Another sore point that is a much bigger concern than some might think of is the high cost of child-care. In today’s society the vast majority of families require both parents working in order to pay the mortgage and the numerous ancillary monthly bills. Daycare services and children’s programs in general can and do take a large financial bite out of a family’s bottom line.

The global forecast for this year remains at 3.5%, which is projected to increase to 3.7% next year. Additionally, the OECD now believes the Eeurozone will expand by 2.1% this year – 0.3% more than the predicted figure three months ago. The U.S. rate was left unchanged. In 2018, the OECD predicts a 1.9% growth for the Eurozone, but the U.S. is expected to surpass that with a 2.4% upswing.

Crude oil prices have stabilized throughout most of the year. While it’s unlikely we’re going to see barrels of oil costing $115 anytime soon, there is an expectation that it could reach $70. On the surface, Canadians grumble and groan about oil prices going up, but the Canadian economy relies heavily on the oil and gas sector to fund both federal and provincial initiatives, including many social programs. Without the tax dollars generated from the resources sector it puts a huge strain on federal and provincial coffers.

Oil has reached a balanced spot in relation to global supply and demand, and the probability of another collapse is quite unlikely. OPEC also recognizes that the price of oil will have to be capped at a certain level, otherwise it risks losing its largest customer – the United States. If prices skyrocket, the U.S. has made it abundantly clear that it will ramp up its fracking and shale gas options rather than pay exorbitantly high prices set by OPEC.

Higher and more stable crude oil prices have boosted business confidence for more than a year now. This is confirmed by several indicators and suggests that business investment will continue to prosper and elevate into 2018.

In recent weeks the Canadian dollar has reached a peak of 82 cents and is currently trading right at the 80-cent plateau. A cheaper loonie has been great for the tourist industry and many exporting manufacturers and somewhat compensated for the severe decline in economic activity tied to natural resources. While most of Canada has adjusted, the pain is still being felt in Alberta, and particularly Calgary, where the downtown office vacancy rate is hovering at about 30%.

Historically low interest rates have gradually increased with the Bank of Canada feeling secure enough in bumping the trendsetting overnight rate to 1%.

Recent economic data from the Bank of Canada has revealed stronger than expected results. It is the Bank’s view that the country’s growth is becoming more broadly-based and self-sustaining. Consumer spending remains robust, spearheaded by solid employment and income growth. There has also been more widespread strength in business investment and in exports.

Bank of Canada Governor Stephen Poloz has noted that while inflation remains below the 2% ideal target, it has evolved significantly since early in the summer months. There has been a slight increase in both total CPI and the Bank’s core measures of inflation, consistent with the dissipating negative impact of temporary price shocks and the absorption of economic slack.

The national economy whisked by expectations of most financial experts. In fact, the second quarter was the most productive since 2002, according to figures released by Statistics Canada. Consumers are clearly confident with the market trends and a stable environment, and as such increased spending to the point of the gross domestic product expanding at an annual rate of 4.5%. The last time quarterly growth was that large was in 2011 when it catapulted by an astounding 5.7%.

Housing and trade will both be watched closely, as will future movements by the Bank of Canada. The pace of international expansion picked up this year and that trend should continue in 2018.