GLOBAL ECONOMICS

| SCOTIABANKS GLOBAL OUTLOOK

January 17, 2017

CONTACTS
Canada
Brett House, VP & Deputy Chief Economist
Growth is expected to accelerate over the next two years owing to firmer 416.863.7463
Scotiabank Economics
domestic activity, expanding fiscal stimulus, and increasing foreign brett.house@scotiabank.com
demand.
Neil Tisdall
For the first time in years, housing and auto sales are expected, 416.866.6252
Scotiabank Economics
however, to provide a mild drag on growth. neil.tisdall@scotiabank.com

CANADA CONSOLIDATES GAINS IN 2017 Adrienne Warren

416.866.4315
Canadian economic performance appears to have been mixed in the second half of Scotiabank Economics
adrienne.warren@scotiabank.com
2016, but activity looks set to strengthen during 2017. Underlying output growth
averaged around 1.5% y/y during 2016 amid weakness in exports and business Mary Webb
investment. Growth is expected to accelerate beyond the economys 1.5% potential 416.866.4202
Scotiabank Economics
to around 2% during 201718 (Chart 1), supported by steady consumer demand,
mary.webb@scotiabank.com
stabilizing investment, strengthening US domestic purchases of Canadian exports
in the context of a weaker Canadian dollar (CAD), firmer oil prices, and fiscal
Chart 1
stimulus, including increased Canadian infrastructure spending. Some moderation
in major housing markets is, however, likely to provide a slight drag on growth. Canadian GDP and Potential Output
6
y/y% change
STEADY CONSUMERS 5
Potential Real
4
Consumers remain relatively upbeat despite a mixed employment and tax picture for Output GDP
households: consumer confidence returned to its long-run average in December 3

(Chart 2), though some survey data indicate major purchase plans have softened 2
somewhat in recent months. New vehicle sales, for instance, are likely to come down 1
after four consecutive record years, following recent price hikes. Domestic wage and
0
income gains were held back throughout most of 2016 given the largely part-time 00 02 04 06 08 10 12 14 16 18
-1
nature of job creation. While there was a strong increase in full-time hiring at the end
of the year, Canadas aggregate employment-to-population ratio is still around 2 -2

percentage points below its pre-recession peak (Chart 3) and long-term -3

unemployment remains high (Chart 4). -4
Sources: Scotiabank Economics, Statistics
Apart from Quebecs elimination of its health contribution as of 2017, Canadian Canada, Bank of Canada.
households are unlikely to witness material tax relief through 2018 as a range of Chart 2
levies are set to be raised. As of January 2017, Alberta and Ontario will join British
Confidence On The Rise
Columbia and Quebec with broad frameworks for pricing carbon, followed by at Heading Into 2017
least four other provinces a year later. The impact of carbon pricing will be 150
index
softened for low-income households by credits offered by a number of provinces, 140

which add to the 2016 enhancements to targeted federal and provincial benefits, 130
notably Ottawas and Albertas respective increased child benefits. 120
average
110
200216
Overall, we expect real consumer spending will grow in line with underlying real
100
income growth of around 1.52% annually during 201718. The boost to
90
household purchasing power and discretionary spending from the Canada Child
80
Benefit should be partially offset by higher food and energy inflation, municipal fee
70
increases, and higher mortgage costs. Record indebtedness amid rising interest Canadian consumer
60 confidence
rates shall likely limit the capacity of households to ramp up spending notably, and
50
should prompt a more cautious approach to further debt accumulation. 07 08 09 10 11 12 13 14 15 16
Sources: Scotiabank Economics, Conference
Board Of Canada.

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