Business investment, other factors to weigh on Canadian economy in 2019

By Staff, with files from The Canadian Press | December 12, 2018 | Last updated on December 12, 2018
3 min read
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In 2018’s latter half, slumping oil prices and higher interest rates weighed on Canada’s economy, and will likely continue to do so in 2019, a series of economic reports say.

Globally and in the U.S., growth is also expected to moderate in the new year.

In an economic outlook report, RBC forecasts Canada’s GDP growth to decrease to 1.7% in 2019, from 2% this year. Along with the headwinds of oil and interest rates, that outlook is based on a consumer slowdown, and modest increases in business investment and exports.

A National Bank report suggests business investment might be more disappointing in 2019 than expected, and highlights an economic measure released today by StatsCan: industrial capacity utilization rate. That’s the ratio of the economy’s actual output to potential output, which fell to less than 83% in Q3—the lowest in a year—due to declines in manufacturing, construction, and oil and gas.

“Most sectors now have lower utilization rates than before the Great recession of 2008-2009,” says the National Bank report, adding that the Q3 measure doesn’t bode well for investment spending.

Further, “Oil and gas, one of the rare sectors where utilization is higher than pre-recession levels, is unlikely to see much investment given depressed energy prices,” the report says.

On a more granular level, two of Canada’s western provinces are expected to diverge in growth next year, as Alberta is affected by oil production cuts in an attempt to address energy prices. RBC projects Alberta’s growth to decline to 1.5% from 2.4% this year.

Meanwhile, B.C.’s economy is expected to thrive as LNG Canada’s $40-billion natural gas project provides a significant boost to the province’s economy. RBC forecasts 2.6% growth for B.C. in 2019, jumping from 1.9% in its previous quarterly outlook. The higher pace of growth is likely to continue into 2020, says the RBC report.

A Conference Board of Canada report has a brighter outlook for Alberta. It forecasts GDP growth of 2.2% in 2019, but uncertainty in the province’s oil sector around prices, transportation and mandated production cuts could result in lower-than-projected growth.

Newfoundland is expected to lead the country in economic growth thanks to offshore oil royalties, the report says. Just a year after having the weakest economic outlook in 2018, the province’s real gross domestic product is expected to grow by 5.2% in 2019.

Prince Edward Island and British Columbia are also expected to see strong growth of 2.7% next year, according to the report, with P.E.I. benefiting from steady immigration and a booming tourism industry.

The think tank forecasts Canada’s growth at 2% in 2019.

For a closer look at provincial growth, see the Conference Board report, as well as this separate RBC report.

Global and U.S. outlook

The global economy also faces headwinds as accommodative monetary policy ends, and global trade tensions and political uncertainty continue. “The political backdrop is the most unsettled since the Cold War,” says the RBC report, which refers to populism and Brexit.

RBC forecasts the global economy to expand by 3.7% in 2019, matching the pace of the previous two years as past momentum tops out.

The bank expects the U.S. economy to continue to expand at an above-potential pace in 2019, at 2.5%, though tighter financial conditions will weigh on consumers and business investment.

Also, growth of global exports and imports will likely slow as a result of tariffs, says the report, and the strong U.S. dollar will weigh heavily on demand for U.S. exports. While costs associated with tariffs will initially be absorbed by businesses, they will likely filter into consumer prices the longer they remain in place, it adds.

For more details, including global growth tables and interest rates, read the full RBC report.

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Staff, with files from The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.