The Conference Board of Canada cut its forecast for economic growth this year after the contraction seen in the second quarter.
The think tank said Wednesday it expects real gross domestic product in Canada to grow 5.1% in 2021 compared with its forecast in July for growth of 6.7%.
The board’s prediction for growth in 2022 held steady at 4.4%.
However, the board says economic growth is expected to cool toward the end of next year with annual gains of 1.6% to 1.7% for 2023 and beyond as economic stimulus effects wear off.
“The unprecedented levels of pandemic stimulus measures are easing as social distancing restrictions have largely lifted across Canada, but the debt overhang remains a long-term issue,” said Ted Mallett, the boad’s director, economic forecasting.
“These critical income measures led to a federal deficit of $228 billion in 2020. While a rebound in revenues, as well as the easing of some major support measures led to an improvement in the deficit this year, the federal government has added massively to its debt in just two years.”
The report said the growth this year and next will come as consumers dip into their savings to spend.
Rising oil prices are also expected to help the recovery in the oilpatch.
However, the report said the distribution of vaccines remains challenging in many other countries and that the result has been weaker demand for Canadian agricultural, mining, manufacturing and energy products.
It said the spread of the Delta variant, even in countries with high vaccination rates, remains the largest risk to the outlook for the global economy.
Statistics Canada said in August that the Canadian economy contracted at an annualized rate of 1.1% in the second quarter, its worst quarterly showing since the start of the pandemic.
The agency also said its initial estimate for July showed a contraction of 0.4% for the month.