Canada likely to grow by 2.2 pct in 2018, says Scotiabank

Canada’s economic growth is expected to expand by 2.2 percent going into next year, following a very strong 3.1 percent rise in 2017. Though growth is expected to slow substantially in 2018, that pace of activity will remain well above the economy’s potential growth rate, adding inflationary pressures and requiring higher interest rates, Scotiabank reported.

Global momentum remains strong, with data received over the last month suggesting global growth in 2017 will be a touch stronger than we anticipated last month. Key changes include more robust US growth in the second half of 2017 and in 2018 owing to incoming data that suggest domestic demand is stronger than earlier thought.

While the Bank of Canada should increase interest rates in December or January given the strength of the economy, it is not expected to move until April. Governor Poloz has made it clear that he is closely watching: the state of the NAFTA negotiations and the potentially negative implications they have for confidence and investment; the impact of the 50 basis point rise in the policy rate so far; and the most recent measures announced by OSFI to cool the housing market.

"Nevertheless, a compelling case exists to raise interest rates sooner, and we think incoming data will be supportive of a rate rise in December or January. At this time, we would place the odds of a move in those months at slightly less than 50," the report said.

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