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Canada GDP growth expected to accelerate to 2.6 percent

Staff writer |
Following a weak start to 2014, Canada's economic growth is picking up speed thanks to solid trade sector activity.

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Canada's real GDP growth is expected to accelerate to 2.6 percent in 2015, up from this year's more modest increase of 2.2 percent, according to The Conference Board of Canada's Canadian Outlook: Autumn 2014.

"In recent years the trade sector has been the main source of Canada's economic woes. However, the challenges the trade sector faced over the past several years have largely dissipated," said Matthew Stewart, Associate Director, National Forecast.

"Stronger U.S. economic activity, coupled with a slightly weaker Canadian dollar means the trade sector will be the main driver in the strengthening of our economy."

Canada's real GDP growth is expected to accelerate to 2.6 percent in 2015, up from 2.2 percent this year. The trade sector will be the main driver of Canada's economic strength. Capital investment will continue to stagnate this year.

Stronger economic growth will result in an interest rate increase in the second half of 2015. Exports increased sharply in the second quarter of 2014 and are just shy of their pre-recession levels. Overall, exports are forecast to increase by 5.1 percent this year and accelerate in 2015 as the U.S. economy picks up steam.

The stronger demand for Canadian exports should boost business confidence and encourage investment and hiring in 2015. One of the biggest disappointments in the Canadian economy has been the stagnation of capital investment over the last two years.

Business investment is expected to fall by 0.7 percent this year, before growing again in 2015. Likewise, Canada's job market, which has been sluggish for an extended period, is expected to pick up along with improving economic conditions.

The Conference Board of Canada predicts the Bank of Canada will raise interest rates in the second half of 2015 as the economy is expected to approach its full potential later in the year. Rates hikes are expected to be gradual given the modest pace of overall economic growth, and uncertainty with respect to the path of the global recovery.

Canadian consumers have continued to spend despite poor labour market conditions. However, elevated household indebtedness, combined with a rise in interest rates beginning in late 2015, will likely temper growth in consumer spending over the medium term.

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