World economies
Canada, the world’s sixth-largest oil producer, ranks third in the world in proved oil reserves after Venezuela and Saudi Arabia, and is a world leader in agricultural production, telecommunications and energy technologies. It is the 12th largest export economy in the world. With a large oil and natural gas sector it is also the largest foreign supplier of energy to the US, and a top source of US uranium imports.
The economy showed modest growth of 1.5 per cent in 2016 before returning on track to record an estimated three per cent growth due to strong consumer spending and a hot housing market and strong labour market in 2017.
However, employment growth is set to weaken in 2018, mainly due to a tight labour market and an aging population. Despite record high debt loads, consumer spending will remain a driver of economic growth but the consumer spending growth will moderate. Consumer spending growth is expected to fall from 3.6pc in 2017 to 2.4pc in 2018. The drop in employment rate in January 2018 has pushed the national jobless rate to 5.9pc from 5.5pc in 2017.
In 2019, the growth is expected to dip further to below two per cent. Despite solid wage gains next year and a tight labour market, Canadian consumers spending will be constrained by high debt loads over the short term. The household debt-to-income ratio currently stood at 171.1pc. Global markets are increasingly aware that Canadian households are severely indebted and that the consumption growth that has long powered the economy is unlikely to be sustained. The IMF now believes Canada’s economy will grow by 2.3pc in 2018.
Most economists are of the view that a stronger U.S. economy will always support growth. A cheaper Canadian dollar and growing foreign demand for Canadian goods could be a helpful combination for exporters this year. Some economists even forecast slower but still above-potential growth of 1.9pc in 2018, moderating to 1.6pc in 2019.
The federal government is using an improved fiscal situation to make increases to some of its tax measures for middle and low income. The government’s fiscal stance is mildly expansionary. Modest fiscal tightening is projected in 2019. The fiscal deficits are projected to be lower than originally forecasted $19.9bn for 2018, down from the 2017 budget forecast of $28.5bn. The deficit is set to continue dropping over the next five years, to $12.5bn in 2022-23, but there is still no budget balance in sight.
The federal government is likely to outline its new fiscal plans before the end of March. Budget 2018 will focus on policies intended to share the benefits of a rising economy. One key challenge for fiscal planners will be projections of modest economic growth in the years to come. This modest outlook will limit tax revenues, unless governments take actions to bolster economic growth.
According to private analysts, the budgetary balance will show a deficit of $20.2bn this fiscal year, narrowing gradually to $9.9bn in 2022-23. Lower spending accounts for most of the reduction in the deficit over the projection horizon. But a shrinking budget deficit based on a drop in federal debt is raising concerns over delays in government efforts to funnel infrastructure money into projects.