The combination of private-sector growth and public infrastructure spending is set to propel growth in Canada’s gross domestic product (GDP) this year to 2.7%, the highest annual rate since 2011’s 3.1%, a Scotiabank report predicts.
That rate would make Canada one of the fastest-growing countries in the industrialized world., according to the bank’s new Global Outlook report.
Following strong GDP growth in the first quarter of 2017 – 3.7% growth rate quarter-over-quarter – real GDP growth this year, adjusted for inflation, is projected to hit 2.7%. That’s well above the 2% Scotiabank foresaw at the beginning of the year. According to the report, GDP growth is expected to slow down to 1.9% next year as economic activity moves towards more balanced contributions from investment and trade, as well as increased public infrastructure spending.
According to the report, domestic growth in Canada remains overly dependent on households – real consumer spending and residential investment growth was more than 5% in Q1, the strongest quarterly performance in nearly a decade. The two sectors combined now account for a record 66% share of Canada’s GDP. Yet sources of Canada’s growth are beginning to diversify, the report found. In April, its diffusion index on the components of Canadian GDP reached its highest level since 2013.
Job gains this year averaged almost 30,000 each month, the report said. Retail and hospitality services are getting a boost from strong tourism demand as the relatively weak dollar attracts a growing number of tourists from abroad. Tourism spending increased 5% in the 12 months leading to the first quarter of this year.
Housing demand remains high, with limited supply in Vancouver and Toronto causing excess demand to spill into markets in Calgary, Ottawa, and Montreal. In addition, low borrowing costs, robust job growth and high immigration numbers will likely lift housing demand in 2018, Scotiabank said.
Provincially, British Columbia is leading private-sector job creation for the second consecutive year.
On the manufacturing side, high demand in the U.S., which receives 60% of Canada’s overall manufacturing output, was the biggest factor in raising Canadian non-automotive manufacturing shipments by 8% year-over-year through April.
Scotiabank said policy uncertainties in the U.S. will likely have an effect on the Canadian economy.
“It now appears clear that the United States will seek to modernize [the North American Free Trade Agreement] instead of ripping it up,” said Jean-François Perrault, senior vice-president and chief economist at Scotiabank. “However, the U.S. is now also considering tariffs on imported steel by applying a national security designation to the sector. If enacted, these tariffs would have the potential to trigger significant retaliatory actions that could develop into a trade war.”