Thursday, November 17, 2016

Challenges from the U.S. Make the Canada’s Economic Outlook Uncertain

Canadian GDP grew by 0.2% in August as compared to July this year, while the monthly growth in July was recently revised down to 0.4% from the earlier estimate of 0.5%. As compared to August 2015, GDP grew by 1.3% in August 2016. For the year of 2016 as a whole, GDP growth forecasts are in the same range, 1.0%-1.5%. This is moderate growth and a better outlook for 2017 is dependent to a large extent on stronger oil and gas prices and the government’s infrastructure spending plans.

Canadian Economic Growth (source: 

However, in the future, the Canadian economy may face some headwinds from south of the border. The U.S. is the biggest buyer of Canadian goods and services, but it is also Canada’s biggest competitor. Donald Trump’s plans to reduce corporate income tax to 15% and significantly deregulate such sectors as oil and gas, financial services, pharmaceuticals and healthcare may help divert investors from Canada to the U.S.

The other major factor, which will likely distinguish the Canadian economy from the American one going forward, is the carbon tax. This tax will be introduced in Ontario next year and there will be a national price on carbon-dioxide emissions imposed nationwide in 2018. As Donald Trump is a climate change denier, there will be no carbon pricing in the U.S. under his administration. The Canadian government does not seem to be willing to abandon its carbon tax plans and it remains to be seen whether this factor will further strain economic growth prospects in Canada.

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