Canada's Economy to Slow in 2019 as Risks Mount

OTTAWA, Dec. 18, 2018 /CNW/ - Canada's economy is facing headwinds on several fronts. Consumer spending will be restrained by a combination of weaker employment and wage growth, high debt loads, and rising interest rates. Meanwhile, the drop in oil prices and lack of pipeline capacity will continue to constrain investment in Canada's energy sector. Government spending is also expected to slow due to rising fiscal deficits.

In all, The Conference Board of Canada expects Canada's GDP to grow by 1.9 per cent in 2019, easing from an expected 2.1 per cent gain this year.

"Canada's economy is facing a few challenges heading into 2019. Consumer spending has been driving economic growth over the last several years, but Canadians are tightening their purse strings. Economic growth in 2019 will depend on improved business investment and a better performance from the non-energy trade sector," said Matthew Stewart, Director, National Forecast, The Conference Board of Canada.

Highlights

    --  The Canadian economy is projected to grow by 1.9 per cent in 2019,
        easing from a 2.1 per cent pace this year.
    --  Energy investment will remain weak due to a subdued outlook for oil
        prices. Meanwhile, energy exports are forecast to decline as weak
        investment and the Alberta government's production cuts take their toll
        on future production.
    --  Outside of the energy sector, business investment is expected to see a
        modest pickup but will continue to underperform compared to many of our
        trading partners.

Household spending is slowing due to several factors, including weaker job growth, rising interest rates and cooling home prices. While job growth has picked up in recent months, overall employment growth in 2018 was modest. A factor behind the sluggish employment growth has been rising retirements, as many baby boomers continue to exit the labour market. This has led to labour shortages across many industries in Canada with the unemployment rate hitting a record low of 5.6 per cent in November. Unfortunately, wage growth remains weak. But, given how tight labour markets are, wage growth should begin to pick up in 2019 as firms compete for a limited number of workers.

In addition to the weaker outlook for consumer spending, the collapse in oil price and pipeline capacity constraints are hitting Canada's energy sector hard. Investment in the oil and gas industry in Alberta is expected to decline for a second year in a row in 2019--weak oil prices and the uncertainty associated with transportation bottlenecks and the provincial government's mandated oil production cutbacks are hurting investment intentions. Despite Alberta's ongoing struggles, overall investment in Canada's energy sector will increase in 2019, thanks to the LNG Canada project and the Coastal GasLink pipeline, which will generate substantial investment in British Columbia.

On a more positive note, non-energy investment should receive a lift from the signing of the new Canada-U.S.-Mexico agreement (CUSMA) and the new federal measures that allow for accelerated write-off of several types of investments. Assuming that the U.S. Congress passes the trade bill, some of the uncertainty that had restrained investment spending should be alleviated. The CUSMA should also help boost Canada's export performance. A pickup in non-energy exports is forecast for 2019 but growth will be limited by weak investment and high capacity utilization rates in the manufacturing sector.

The Canadian Outlook is the Conference Board of Canada's quarterly report, which examines the short-term economic forecast for Canada, including consumer expenditures, housing, government, non-energy business investment and trade.

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SOURCE Conference Board of Canada