The Canadian economy should start gaining momentum over the next couple of years, as the impact of new federal infrastructure spending starts flowing through, say Bank of Nova Scotia economists in a report published Monday.
The latest Global Forecast Update provides the bank’s first forecast for 2017. The report sees Canadian gross domestic product (GDP) growth accelerating to 2.3% from 1.8% in 2016. For the U.S., the report predicts 2.7% growth in 2017, up from 2.5% in 2016.
“An even better U.S. economic performance awaits a stronger housing cycle, increased business investment, and improved international shipments — developments that may not materialize until later next year or until 2017,” the Scotia report says.
“Canada should continue to piggyback on the momentum in U.S. domestic demand, with non-resource manufacturing and service exports getting an added boost from a more competitively valued Canadian dollar,” the report says. “The Canadian economy should also receive a boost from the increased spending provided by Ottawa’s newly elected federal government, though the additional infrastructure expenditures promised are likely to have a greater impact in 2017.”
However, the positive impact of the new infrastructure spending will be tempered by higher income taxes for top earners, and businesses likely facing higher environmental costs, the report says, “both of which could reinforce a less buoyant trend in household and business spending.”
“Canadian output growth should continue to gradually build some momentum, with a stronger growth cycle largely dependent upon a renewed upswing in commodity prices and resource-related investments, and the anticipated improvement in the U.S. economy’s performance,” the report says.
For 2015, Scotia also nudged its Canadian GDP growth forecast up from 1.0% to 1.1% “to reflect the slightly better tone in a number of recent data reports, most notably the pickup in export volumes,” the report says.
“In 2017, real GDP growth is expected to remain solid in central Canada, Manitoba, and British Columbia, assisted by continued softness in the Canadian dollar,” says the Scotia report. “The rebound in Alberta, Saskatchewan, and Newfoundland and Labrador is expected to continue, but at a muted pace relative to prior corrections.”
For Europe, Economic growth will strengthen modestly from 1.5% this year to 1.7% in 2016 and 1.8% in 2017, the Scotia report says. And, for China, the report predicts that real GDP growth will slow from 6.9% in 2015 to 6.4% and 6.2% in 2016 and 2017, respectively.