In the coming months, the declining marginal impact of COVID-19 should keep renewed business and consumer optimism intact while a resilient jobs recovery should support income growth. Sources: Statistics Canada, Oxford Economics, and S&P Global Economics forecasts.īroad-Based Domestic Demand To Power Growth In The Coming Months Core CPI is consumer price index excluding energy and food components. Housing starts (annual total in thousands)Īll "year % ch." are annual averages percent change.
Real nonresidential structures investment (year % ch.)
Household real final consumption (year % ch.) S&P Global Canada Economic Forecast Overview At this stage, it is once again evident that more coordinated and decisive efforts will be necessary to vaccinate the world's population to prevent the emergence of new, more dangerous variants. Meanwhile, the omicron variant's appearance has jolted confidence and we can expect a precautionary stance in markets, as well as further containment measures, until more accurate information becomes available. Over the coming weeks, we expect additional evidence and testing will show the extent of the danger it poses. Early evidence points toward faster transmissibility, which has led many countries to close their borders with Southern Africa and/or raise travel restrictions to some degree. Although already declared a variant of concern by the World Health Organization, uncertainty still surrounds its transmissibility, severity, and the effectiveness of existing vaccines against it. The new omicron variant is a stark reminder that the pandemic is far from over. Moreover, given close to one-third of Canadian GDP is based on exports (versus less than one-eighth in the U.S.), weaker than expected output growth could persist not just due to policy choices made domestically but also by governments overseas. The delta variant may not represent the last assault by the virus and worsening fatalities could reverse some reopening trends domestically (especially in light of the current sweeping wave of COVID-19 in Europe). That said, downside risks to our baseline growth forecasts from COVID-19 can't be brushed off just yet. High vaccination rates should obviate the need for major social restrictions going forward. Implicit in our baseline forecast is that the drag on spending from COVID-19 will continue to wean. Taken together, the revisions to annual GDP growth sum up to a GDP trajectory that brings the Canadian economic output to a level more or less consistent with our earlier forecasts published this year (see chart 1). However, we have raised our 2023 growth forecast by 0.4 ppts to 2.7% and 2024 growth by 0.2 ppts to 2.1%, as the gradual clearing of current global growth headwinds and additional public investment by the newly re-elected government buttress stronger advances(1). We have lowered our GDP growth forecasts by 0.4 percentage points (ppt) to 5.0% in 2021 and by 0.1 ppt to a still strong 3.7% in 2022. Still, several government support programs were withdrawn in the fourth quarter, labor and capital supply constraints will linger into next year, and elevated inflation will eat into purchasing power.
TAPER BURST FADE FULL
Given elevated inflation (above the BoC's target band) in the first quarter and our forecast of total employment recovering to full employment trend by the first quarter of 2022, we now anticipate the BoC will begin its rate hike cycle in April 2022 (versus market pricing of as early as January 2022 and BoC's "sometime in the middle quarters of 2022").Īn improving health situation in Canada amid vaccination progress has led to stable mobility, reinvigorated demand for services, and stronger hiring.We continue to see inflation as a specific feature of the pandemic crisis that will fade away along with pandemic disruption. Our forecast is that consumer price inflation in Canada will peak this quarter and the next (on a year over year basis) before reverting in the second half of 2022 to its 2% average, in line with Bank of Canada's (BoC) target.The delta variant may not represent the virus' last assault and higher- and longer-than-expected inflation could derail the domestic demand from a robust growth path. There are numerous risks to our baseline growth forecast.Despite the setback from third and fourth waves of COVID-19 in 2021, the Canadian economy is still on course to expand by a robust 5.0% in 2021, and 2022-2023 will likely bring another couple of years of above-potential growth.
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