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The economic cycle is long in the tooth, but growth in Canada and the U.S. should remain strong until 2020, forecasts Desjardins in an outlook report.

The bank forecasts strong growth in 2018 and 2019, but, thereafter, “there will be greater risk of an economic slowdown as the current cycle matures.” The result: monetary tightening would end three years from now (2020), and a new round of easing might be needed.

Read: Synchronized global growth favours equities, but risks lie in wait

In the shorter term, with the output gap closing, expect inflationary pressures on goods and services, as well as wages, says the report.

“In some parts of the world, demographic changes may exacerbate the [productivity] problem, making manpower scarcer and reducing the potential for economic growth.” Unemployment rates in Quebec, in particular, should reach new lows as the province’s economy grows at a steady pace. (This past year was the province’s best in a decade and a half.)

Read: Condo sales push Montreal real estate to November record

Where it gets worrying

The current cycle will be 10 years old come 2019—the longest cycle ever recorded in the U.S. And that longevity fuels expectations with potentially negative effects.

“More and more investors will be starting to worry about a new economic slowdown,” says the report. “Not only could their fears help flatten the yield curve, but they could hold the stock market back.”

The bank’s forecasted slowdown near the close of 2020 would continue into early 2021. But, for this pullback, there won’t be major imbalances, as there was in 2008-2009 within the U.S. real estate market.

That means “a fairly solid recovery could follow quickly, propelled by interest rate reductions by the central banks,” says the report.

One caveat: household and government debt is “a significant risk element that could lead to a more pronounced economic slowdown than we have predicted,” says the bank. Though U.S. households are in a better financial position than in 2008, “Canada tells a different story.”

Read: BoC warns of risks for clients with mortgages

For global details, as well as a more nuanced discussion of the Canadian and U.S. economies, read the full report.

Originally published on Advisor.ca
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