Monday, September 24, 2018

Major correction not expected says Conference Board

The Canadian economy is expected to outperform a previous forecast by the Conference Board of Canada.

In its updated forecast released Friday, it said that it was expecting 2% growth in 2018, up 0.2 percentage points from its previous forecast.

But the risk of NAFTA talks failing, or increased tariffs could mean that growth is reduced by between 0.5% and 1.3% over a 2-year period.

“The Canadian economy performed well in the second quarter of 2018, with consumers increasing their pace of spending, businesses raising investment in their capital stock and a double digit increase in exports,” said Matthew Stewart, Director, National Forecast. “However, significant challenges remain, which will slow growth over the remainder of the year and into 2019.”

Housing demand expected to remain limited
The Conference Board says that while it expects a further cooling of the housing market during the second half of the year, “a major correction is not in the cards.”

Demand for housing continues to be tempered by policy changes as planned by policymakers and prices are down by around 6.5% for existing homes year-over-year.

Increasing interest rates and an aging population will both weigh on demand the Conference Board says.

So too will a moderation of employment growth with a forecast of 213,000 jobs in 2018 compared to 337,000 in 2017. Wages, while up 3.1% this year, are expected to weaken significantly in 2019.

The economic acceleration in the second quarter took a significant portion out of the economy’s excess capacity. Consequently, the Conference Board expects the Bank of Canada will raise its interest rate in October and raise rates three times in 2019.

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