Canada’s economic growth will outpace the U.S. and lead the G7 this year on “buoyant consumer demand,” the International Monetary Fund said in a report Monday that revised Canada’s forecast upward and helping to lift the loonie.
The global financial institution says Canada’s GDP will grow at 2.5 per cent, up 0.6 percentage points from its April forecast. But it cut its projection for growth next year to 1.9 per cent from 2.0 per cent on expectations that interest rate hikes will dampen housing and debt-financed consumer spending.
The IMF report added momentum to the loonie, which broke through the 80 cents U.S. threshold mid-day Monday for the first time in more than a year, before closing at 79.92 cents U.S.
Mounting evidence of an economy picking up steam has increased the probability that Canada’s central bank will raise borrowing rates again this year after a 25 basis point increase in July to 0.75 per cent.
“Growth in 2018 is a victim of our success in 2017,” said Avery Shenfeld, chief economist at CIBC Capital Markets. “As we get to full employment, the Bank of Canada will be actually trying to ease growth a bit in order to prevent inflation from breaking out.”
He said GDP growth in 2019 “might have to be a bit slower still unless output per worker picks up.”
Consumer spending, housing starts and a strong turnaround in business investment fuelled a 3.7 per cent annualized growth rate in the first quarter and RBC chief economist Craig Wright said rising investment and government spending on infrastructure has the economy on track to grow at nearly double the average pace of the previous two years.
“While we don’t discount the risk of a slowdown resulting from the pending renegotiation of NAFTA or the expected cooling of the housing market,” Wright said, “we remain confident the economy will continue to grow at an above-potential pace for the remainder of this year.”
Published by The Star