The global economy is projected to post its best performance this year since 2014, while growth in Canada in expected to accelerate over the next two years, according to Scotiabank’s Global Outlook, published on Tuesday.
While geopolitical risks abound, recent economic data point to strengthening growth prospects in most areas of the world, Scotiabank said in a statement, adding that “from an economic perspective, the risks could be characterized as unbalanced toward the positive for the first time in many years, given the momentum already underpinning global growth.”
Jean-François Perrault, senior vice president and chief economist at Scotiabank, pointed to the incoming administration of United States’ President-elect Donald Trump. “The incoming Trump administration’s approach to trade policy, which has not yet been fully articulated, represents a significant risk to the global recovery,” Perrault said. “While it may appear that we are entering a stronger, more sustained phase of the global recovery, it is too early to put on our sunglasses.”
The report suggested that Canadian growth will accelerate to 2% in 2017 from 1.4% as the economy benefits from stronger U.S. growth, an increase in oil prices, a weaker currency against the U.S. dollar and public infrastructure factors.
“Adding to these factors, and perhaps because of them, businesses appear cautiously confident in their prospects, with firms expanding their hiring while tentatively considering increased investment,” the report said. “We forecast that exports will rise more than twice as fast in 2017 as they did in 2016 as both resource and non-resource exports respond to rising US business activity, the weaker Canadian dollar against the greenback, and higher oil prices.”
As well, housing and auto sales are expected to provide a “mild drag” on growth, the statement said.
For the oil-producing provinces of Alberta and Saskatchewan, Scotiabank forecasts a turnaround to positive growth in 2017, following a 5.5% contraction in their combined real GDP during 2015-2016, reflecting higher oil production and a gradual pickup in energy investment (particularly on conventional projects). Other positive factors include the possibility of the Keystone and Trans Mountains pipelines proceeding.
U.S. growth is expected to accelerate to 2.3% in 2017 and 2.4% in 2018, driven by “robust labour markets, more confident consumers and a pick-up in business investment,” Scotiabank suggested. “Growth in most sectors of the economy appears to be accelerating,” the report said. “Most importantly, there is evidence that business investment is on the rise, as indicators of both business confidence and activity, and for capital goods, point to a modest rebound in capital spending in the United States. Our judgement, at this time, is that the President-elect’s fiscal policies will be mildly stimulative over the forecast period.”
Besides Canada and the United States, the report also looked at capital markets, currency and the economies of Latin America, Asia, the United Kingdom and Eurozone growth. In particular, Scotiabank forecasts the U.S. Treasury and Government of Canada yield curves to flatten over the forecast horizon. “The Fed is likely to hike rates three times in 2017 and twice more in 2018, while the Bank of Canada is not expected to raise rates until mid-2018,” the statement said.