Canadian economy to outpace Eurozone, U.S. in 2017: report

Canada is expected to see strong economic growth in 2017, but a decrease in exports - driven by an increase in the Canadian dollar in Q3 - are an otherwise dark spot | Shutterstock

Canada can expect to see total economic growth of 3.1% in 2017, according to a Conference Board of Canada report released September 21, which is higher than the growth expected in the Eurozone (2%) and the United States (2.2%).

We can’t expect this pace to continue into next year, however, according to the report, and growth next year is expected to slow to 2%.

“Canada’s economy continues to perform well above potential and is on track to outperform most other developed economies by a sizable margin,” said Conference Board director Matthew Stewart.

“However, the recent pace of expansion is unsustainable, and economic growth will slow over the second half of this year and into 2018.”

The economy is being buoyed by consumer spending – the result of a strong labour market – but the cost of servicing debt is on the rise, and this will be a drag on spending over the second half of 2017.

Employment is set to increase 1.5% over the year, which is the strongest increase since before the 2008 financial crisis. Wage growth, however, has been “anemic,” according to the report, with a total increase of 1.4% expected this year.

Business investment is expected to grow 1.3% this year, following a 19.2% drop over the last two years.

“The big driver of the turnaround in investment is increased spending by companies on machinery and equipment to expand their productive capacity,” the Conference Board said.

“While the increase in business investment is good news, the level of spending remains well below its previous highs and one of the key reasons why a slowdown in economic growth is projected next year.

A strong Canadian dollar in Q3 2017 will contribute to a drop in export volumes in the last half of the year, but overall, exports are set to increase 2.3% this year as energy exports soar.

The Conference Board said it expects the Bank of Canada to hike overnight rates again in October and twice in 2018.