The July monetary report by the Bank of Canada has been released and the economic outlook is generally positive, confirming assertions by the federal government that the economy continues to be supported by solid job and wage growth.
To help inform constituents about the strength of the Canadian economy, here are some of the report’s highlights:
• GDP growth is expected to increase from 1.3 percent in 2019 to about 2 percent in 2020 and 2021, slightly above potential growth.
• Growth in the economy is expected to be broad-based: Investment and exports are projected to expand at a moderate pace and consumer spending is expected to grow steadily, supported by sustained income gains, whichinclude climate action incentive payments from the federal government, and solid consumer confidence.
• Paying attention to Canadian household spending, consumption has rebounded and continues to be supported by a solid labour market; wage growth has picked up, unemployment is still near historic lows and employment is strong, partly due to growth of the working age population resulting from increased immigration.
• Household imbalances, as measured by the ratio of household debt to income, have stabilized, and mortgage stress testing has improved the quality of mortgage borrowing.
• The housing market is evolving as expected at the national level as major markets, including the Greater Vancouver Area, adjust to previous speculative activity and changes in housing financing conditions.
At the same time, interest rates on five-year fixed-rate mortgages have fallen recently to around where they were five years ago, which is relevant for people buying a new house or renewing their mortgage. It also reinforces the view that residential investment is once again contributing to growth.
While the oil sector continues to undergo significant adjustment, investment in this sector is forecast to stabilize by 2020, and its exports should gradually increase. Despite challenges, the sector continues to contribute $65 billion annually to the Canadian economy. In addition, construction related to Trans Mountain and to the liquefied natural gas terminal in British Columbia will add to business investment, while investment outside the oil and gas sector is still expected to expand.
The report also says recent export data for Canada have been encouraging. Exports are forecast to grow moderately over the projection horizon, supported by the ongoing expansion of foreign demand.
The most important risks to the Canadian economy, according to the Bank of Canada are related to global trade policies. Because protectionist trade policies can disrupt trade flows and global value chains, they can simultaneously lower output and put upward pressure on prices. While the lifting of tariffs with the US has been positive, recent actions by China, as well as ongoing uncertainty in US–China trade are concerning.
Nevertheless, the bank assesses that upside and downside risks to the projected path for inflation are roughly balanced and are expected to hold near or at the target rate of 2 per cent.
The Bank of Canada is the nation’s central bank lead by CEO and governor Stephen Polos. Polos was appointed in 2013 for a seven-year term.
For constituents who are interested, the full report can be found at bankofcanada.ca.
Stephen Fuhr is the Liberal MP for Kelowna-Lake Country.
