Canada Economic Outlook – 22 January 2020

The Canadian economy is estimated to have expanded by 1.6% in 2019. The outlook for 2020 is a tick higher. This pace of growth is down from 2.0% in 2018, but roughly in line with potential. Underlying the largely steady but unspectacular aggregate profile is a divergence between a moderating but resilient services sector, and a contracting goods-producing segment buffeted by global trade war headwinds, Alberta's oil production curtailments, and one-off strike activity. By contrast, the forecast for 2020 is supported by diminished uncertainty around the Canada-US-Mexico trade agreement (since it passed the US House and Senate), oil curtailments easing, and generally lower global growth downside risks. In addition, a modest federal fiscal boost as well as elevated population growth are an overall growth positive. Furthermore, housing markets have now fully digested previous policy changes.

Meanwhile, consumer balance sheets are stretched, keeping financial stability risks top-of-mind. All in, the economy is coasting along at or near full capacity, with some signs of inflation pressures and falling global downside risks. In line, we now expect the Bank of Canada to be on hold throughout the year and have also revised up our 10-year yield forecast, to 1.6% by end-2020.

Key takeaways

  • The Canadian economy is at or near potential, and growth is forecast to remain roughly at trend over the next two years.
  • Global downside risks have diminished over the past few months.
  • The Bank of Canada was on hold throughout 2019, and we expect more of the same this year.
  • Long bond yields are forecast to move sideways in 2020.


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