Global growth is strengthening, as policy stimulus in some advanced economies is unwound. In fact, all 45 industrialized OECD countries are set to grow this year — the first time since the financial crisis, finds a Scotiabank Global Economics report.
“There are now tangible signs that firms have joined households in contributing to the recovery in most countries,” notes the report. “In fact, capital spending in the more advanced OECD countries is expanding at a pace not seen in over three years.”
In Canada, growth is expected to hit an unsustainable 3.1% during 2017, roughly double estimates of the Canadian economy’s underlying potential this year, finds the report. In 2018, growth will slow to 2%, and in 2019 to 1.5% as tailwinds from Canadian consumers begin to slow and the economy reverts closer to its potential growth rate.
- Price pressures remain muted, but signs of inflation are building in Canada and the U.S.
- A $17-billion federal deficit is expected this fiscal year, improving to $16 billion by the next election.
- Despite its recent strength, the USD is expected to weaken going forward, with currencies like the CAD appreciating significantly through the end of 2018.
- A gradual increase in U.S. and Canadian policy rates is expected, but the Canadian dollar will do some of the BoC’s work. More rapid rate hikes could be required if the loonie doesn’t appreciate as expected.
- Geopolitical risks dominate. While there are economic risks that merit surveillance, potential developments in North Korea are of far greater concern.