Steady economic growth expected in Canada in 2018: BMO

Canada’s economy is on pace to match the best annual growth performance since the Great Recession, a new report from BMO Capital Markets Economics and BMO Commercial Banking said, with real GDP likely to expand 3.1% this year, up from 1.5% in 2016.

“Consumer spending remains solid, while the worst of the capital spending retrenchment in energy is behind us and fiscal stimulus will add support,” the new BMO Blue Book report said. “That said, peak growth is likely past, with the economy expected to moderate to a 2.2% pace in 2018 as most provinces see growth step down. The big story at the regional level is a narrowing gap between the best and worst performers, as the recession fades in oil-producing provinces, while British Columbia and Central Canada should moderate after a few years of blistering growth.”

British Columbia is expected to post a fourth consecutive year with growth in excess of 3% in 2017, the report said, as demographic and consumer spending trends are strong, while housing activity has picked up again. “Ontario is expected to expand 3.0%, with sturdy U.S. demand and improved population growth helping, even as housing moderates in the wake of recent policy changes. Indeed, external economic conditions in Canada’s largest province are about as good as they can possibly get right now,” BMO said. “Quebec should accelerate for a second consecutive year, with growth expected at 2.7%, as the labour market in the province continues to perform well— the jobless rate recently hit a record low of 5.8%, and is now trending consistently below the national average.”

In Alberta, meanwhile, the economy has returned to growth, and could potentially lead the country this year at 4.1%. “But, part of the GDP strength reflects a bounce-back from a negative wildfire impact last year,” BMO said. “Underlying growth is likely to settle into the 2%- to-2.5% range by 2018, consistent with neutral oil prices and a much softer environment than enjoyed over the past 15 years.” Saskatchewan is expected to return to modest 1.7% growth this year, while Newfoundland and Labrador GDP will get dragged down by a number of major capital spending projects reaching completion. “Manitoba maintains a very consistent growth trend of just above 2%. Momentum has improved somewhat across most of Atlantic Canada, with New Brunswick expected to see 1.5% growth this year, still subdued as fiscal restraint weighs,” BMO said. “More favourable fiscal backdrops in Nova Scotia and Prince Edward Island should allow growth in those provinces to clock in closer to 2%, but longer-term demographic headwinds continue to weigh on the region, even as population growth, consumer spending and residential construction see a near-term boost.”

The full BMO Blue Book report is available at this link.