Canadian economy stumbles, but is still poised for robust recovery

We remain bullish on the outlook for the Canadian economy over the next two years despite a surprising contraction in Q2. However, increased Delta caution and supply chain disruptions will temper growth for the remainder of 2021 and likely well into 2022. Canada’s high vaccination rates should prevent the reimposition of severe restrictions and allow the economy to grow 5.7% in 2021 and 4.5% next year.

What you will learn:

• We expect households will begin dipping into excess savings built up during the pandemic to smooth spending as government transfers fade. The outlays should be oriented toward services given the pent-up demand built up over the past 18 months.
• Fiscal stimulus from the 2021 federal budget and spillover from the US American Jobs Plan will boost GDP growth in Canada by 0.6ppts in 2021 and by another 0.9ppts in 2022. 
• Monetary policy will remain accommodative. Bank of Canada Governor Macklem remains committed to holding the policy rate at the effective lower bound “until economic slack is absorbed so that the 2% inflation target is sustainably achieved”, and to continue adding stimulus through QE, albeit at a slower pace.