Canada s economy on track for a solid 2018 although policy uncertainty lingers

Size: px

Start display at page:

Download "Canada s economy on track for a solid 2018 although policy uncertainty lingers"

Jasmine Johnston
5 years ago
Views:

1 Canada s economy on track for a solid 2018 although policy uncertainty lingers Dawn Desjardins (Deputy Chief Economist) (416) dawn.desjardins@rbc.com March 2018

2 Canada is facing a challenging environment Canada: News-based Policy Uncertainty Index month moving average, Mean=100 prior to Source: PolicyUncertainty.com, RBC Economics Research 2

3 But economy is healthy and solid growth is expected this year 8 6 Canada's real GDP Quarter-over-quarter % change, annualized rate Real GDP Annual Growth Rates % 2018f 1.9% 2019f 1.6% 4 2 Canada's potential growth rate 0 Forecast: Source: Statistics Canada, RBC Economic Research Forecasts 3

4 As consumers step back, government and investment to ramp up 2.5 Contributions to Canadian GDP growth percentage point contribution f Consumer spending Government spending Residential investment Nonresidential investment Net trade Inventories Source: Statistics Canada, RBC Economic Research 4

5 Government committed to stimulus, not worried about deficits Federal government budget balance billions of C$ projection Series /08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 Source: Department of Finance, RBC Economics Research 5

6 A larger bump in spending on tap for this year Canada Federal Infrastructure Spending $ millions Federal infrastructure plans by project start date Source: Infrastructure Canada, RBC Economics Research 6

7 Businesses remained focused on strong demand; not trade threats 40% Business investment spending and intentions year-over-year % change in investment, balance of opinion on investment 30% 20% 10% 0% -10% -20% -30% Investment intentions M&E investment -40% Source: Bank of Canada, Statistics Canada, RBC Economic Research 7

8 so Canadian companies are upbeat Business confidence indicators 70 business barometer >50=stronger next year, BOS indicator index level BOS indicator index level CFIB Business Barometer (LHS) BoC Business Outlook Survey Indicator (RHS) Source: Bank of Canada, Canadian Federation of Independent Businesses, RBC Economics Research 8

9 Oil prices: WCS lags WTI uptick leaving producers with smaller margins Oil prices: WTI and WCS $US/bbl Western Canadian Select (WCS) West Texas Intermediate (WTI) Forecast Source: Bloomberg, Wall Street Journal, RBC Economics Research 9

10 Oil prices to trade between $50 and $60 in West Texas Intermediate (WTI) $US/bbl Forecast Annual Levels 20 WTI 2015 $ $ $ f $ f $ Source: Energy Information Administration/Wall Street Journal, RBC Economics Research 10

11 Business investing to boost capacity 20 Real business fixed investment Year-over-year % change 15 Forecast Source: Statistics Canada, RBC Economic Research 11

12 Export gain led by energy; non-energy performance disappointing Canadian exports by sector Index: 2007 Q2 = 100 Non-energy commodities (29% of total exports) Non-commodities (50% of total exports) Energy commodities (21% of total exports) Foreign activity measure Source: Statistics Canada, Bank of Canada, RBC Economics Research 12

13 Home sales activity on slower trajectory 600 Home resales: Canada Thousands of units year average Source: Canadian Real Estate Association, RBC Economics Research Forecast: 13

14 Period of rapid price appreciation coming to an end Home prices in Canada 12 Annual % change, composite 10.9 Forecast: Source: RPS, Royal LePage, CREA, RBC Economics Research 14

15 Canadian consumption to moderate, not stop 10 Consumer expenditures in Canada Quarter-over-quarter % change, annualized 8 6 Forecast GDP(YoY) Consumer Spending Annual Growth Rates f 2019f Source: Statistics Canada, RBC Economic Research 15

16 Volatility aside, the labour market is healthy 9.0% 8.5% 8.0% 7.5% 7.0% Unemployment rate and wage growth unemployment rate Unemployment rate (left axis) Wage growth (right axis) wage growth 6.0% 5.0% 4.0% 3.0% 6.5% 6.0% 5.5% 2.0% 1.0% 5.0% 0.0% Source: Statistics Canada, RBC Economic Research 16

17 Underlying inflation pressures are increasing Core measures of inflation: Canada % change, year-over-year BoC target CPI-Trim CPI-Median Source: Statistics Canada, RBC Economics Research 17

18 teeing up for headline rate to hit BOC s 2% target Canada: Headline inflation % change, year-over-year BoC inflation target Forecast Source: Statistics Canada, RBC Economics Research 18

19 Bank of Canada to gradually hike policy rate 7 6 Interest rates: Canada % 10 Year bond yield BoC overnight rate Forecast Source: Bank of Canada, RBC Economics Research 19

20 Debt service costs will rise in % Canada debt service ratio debt service payments as a % of disposable income 18% 16% 14% Interest Principal 12% 10% 8% 6% 4% 2% 0% Source: Statistics Canada, RBC Economics Research 20

21 C$ to take direction from relative interest rate policy and oil prices Canadian dollar forecast US$/C$ Parity Forecast End of period 0.7 US$/C$ f f Source: Bank of Canada, RBC Economic Research 21

22 All provinces, outside Newfoundland, to grow in 2018 Provincial real GDP growth in 2018 Annual % change SASK. 2.9 ALTA. B.C. ONT N.& L MAN. CANADA QUE P.E.I 1.5 N.B. N.S Sources: Statistics Canada, RBC Economics Research 22

23 Disclaimer The material contained in this report is the property of Royal Bank of Canada and may not be reproduced in any way, in whole or in part, without express authorization of the copyright holder in writing. The statements and statistics contained herein have been prepared by RBC Economics Research based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This publication is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities. Registered trademark of Royal Bank of Canada. Royal Bank of Canada. 23

Global economy s strong momentum intact despite elevated level of uncertainty. Canada headed for another year of solid growth

ECONOMICS I RESEARCH Global economy s strong momentum intact despite elevated level of uncertainty Canada headed for another year of solid growth Dawn Desjardins (Deputy Chief Economist) (416) 974-6919