Canadian economy facing tough headwinds

Canada's gross domestic product is expected to grow by 1.9 per cent in 2019, easing from an expected 2.1 per cent gain this year

Mario ToneguzziCanada’s economy is facing headwinds on several fronts that will slow the country’s economy in the coming year, says a new report released on Tuesday by the Conference Board of Canada.

The Canadian Outlook said Canada’s gross domestic product is expected to grow by 1.9 per cent in 2019, easing from an expected 2.1 per cent gain this year.

The board said consumer spending will be restrained by a combination of weaker employment and wage growth, high debt loads and rising interest rates. Also, the drop in oil prices and lack of pipeline capacity will continue to constrain investment in Canada’s energy sector. And government spending is expected to slow due to rising fiscal deficits.

“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 of national forecast at the Conference Board of Canada.

The report said energy investment will remain weak due to a subdued outlook for oil prices. And energy exports are forecast to decline as weak investment and the Alberta government’s production cuts take their toll on future production.

The board said business investment is expected to see a modest pickup but will continue to underperform compared to many of Canada’s trading partners.

“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,” said the report.

“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 writeoff 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.”

Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald, including 12 years as a senior business writer.

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