Canadian economic growth likely to decelerate toward 2 pct in 2018 - Scotiabank

In the first half of this year, the Canadian economy performed well, growing above potential at annualized rates of 3.7 percent sequentially in the first quarter and accelerating further to 4.5 percent in the second quarter. According to a Scotiabank research report, the momentum is expected to continue through the second half of the year to sustain a forecast of 3.1 percent real GDP growth for the whole of 2017, up significantly from the 2 percent, stated Scotiabank. Even if the sources of Canadian growth are widening, they continue to be heavily concentrated in consumption, which is unlikely to be entirely sustainable as interest rates rise.

“We expect Canadian growth to decelerate toward 2.0 percent in 2018 and 1.5 percent in 2019 as the effects of tighter monetary policy from the Bank of Canada take hold and growth returns to the economy’s underlying potential”, said Scotiabank.

The Bank of Canada, in its April 2017 Monetary Policy Report, had stated that the potential GDP growth would range between 1 percent and 1.6 percent this year, 1.1 percent and 1.7 percent in the next year and 1.1 percent to 1.9 percent in 2019.

Going forward, the potential growth would average 1.7 percent in 2017-2019, at the upper bound of the central bank’s projections. Also, the Bank of Canada is expected to upwardly revise its expectations for potential growth to reflect improving labor productivity, increasing investment, and capital deepening that would suggest less excess demand and the need for just gradual further rate rises, added Scotiabank.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was bullish at 97.3231, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -5.51822. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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