NAFTA uncertainty clouds Canada's economic outlook for 2018

(The Canadian Press) 
(The Canadian Press) 

While 2017 saw a stellar year for economic growth in Canada, the country’s economy is expected to slow this year. And tumultuous NAFTA negotiations are at least partially to blame.

Overall, the picture isn’t terribly grim: In its March outlook, RBC Economic Research writes that economic growth is anticipated to slow to 1.9 per cent, but business investments and government spending are expected to be the big contributors to economic growth. Businesses are expected to expand, spending on machinery and equipment for facilities. Both the provincial and federal governments are also expected to put money into spending on infrastructure projects.

However RBC economists write that NAFTA uncertainty is likely hampering the full growth and spending potential of businesses. While RBC expects businesses to invest in expansion (anticipating a 3.5 per cent increase on infrastructure spending), it’s likely that increase could have been greater had uncertainty around NAFTA and tariffs on goods sent to the U.S. not been factors.

NAFTA has also played havoc with the Canadian dollar, and if a favourable NAFTA agreement isn’t reached, chances are good that the loonie will hurt for it. If NAFTA negotiations do go well, the loonie is likely to get a boost.

Household spending down

Consumer spending, meanwhile, is expected to fall back. Households carrying high debt levels are expected to be particularly hard hit, as interest rates are anticipated to rise again this year. And with consumer spending growing the fastest since 2010 at 3.5 per cent, RBC anticipates Canadians won’t be as eager to spend this year.

The Bank of Canada is anticipated to raise its rates every quarter this year to reach the banks 2 per cent target for 2018, reflecting strong trade and domestic activity. While higher rates are good for the economy,  it’s a less favourable situation for debt-carrying consumers, and a more difficult situation for those who are seeking a mortgage.

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