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Scotiabank Outlook shows healthy global economy

Growth in Canada is expected to slow to 2.3 percent in 2018 but remain above potential


January 12, 2018
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TORONTO—The global economy continues to impress as household spending and business activity are accelerating or remaining strong in most economies tracked across the globe, according to the Scotiabank Economics Global Outlook.

“This robust global setting is providing a strong backdrop for Canadian growth, even though NAFTA and other geopolitical factors weigh on the outlook,” said Jean-François Perrault, senior vice-president and chief economist at Scotiabank. “While risks loom large, the strength in global activity is a powerful tonic against trade-related uncertainties.”

Against this backdrop of synchronized growth, wage and inflation developments continue to diverge. In Canada, the US and the UK, wage and/or inflation dynamics require a continued withdrawal of monetary stimulus, while in Europe and Japan, inflation remains stubbornly low with little sign of acceleration. All of this is occurring in an environment of heightened geopolitical concerns (the fear of developments in North Korea), trade and political developments in the US, worries about equity market valuations and more generalized concerns about the length and sustainability of the current expansion.

Highlights of Scotiabank’s Global Outlook include:

  • Canada: Growth is expected to slow to 2.3 percent in 2018, but will remain well above potential, adding to inflation pressures and requiring further tightening by the Bank of Canada.
  • United States: The US economy is forecast to grow by 2.5 percent in 2018 with inflation continuing to rise, therefore requiring less stimulative monetary policy.
  • Capital Markets: Scotiabank Economics forecasts a gradual tightening of 75 basis points by the Bank of Canada. The first increase is expected on January 17, followed by increases in May and October. The Federal Reserve is anticipated to raise rates by 75 basis points this year, with the next increase in March.
  • Currency: With a relatively unchanged interest rate differential against the US and oil prices expected to remain roughly at current levels, the Canadian dollar is expected to hover around 80 cents for most of the year.
  • Europe: Growth has far exceeded expectations in 2017 and is set to increase to 2.7 percent in 2018. As inflationary pressures remain virtually non-existent, it is likely that current central bank policies will remain in place for the foreseeable future.
  • Latin America: A strong acceleration in growth is anticipated in Peru, Chile and Colombia, where a combination of higher commodity prices and political developments is expected to lead to increased business confidence, investment, and infrastructure spending.
  • Mexico: Growth is expected to accelerate to 2.4 percent in 2018, owing to strong household spending and rising investment.