Canada Growth to Exceed Potential Output
The International Monetary Fund has put Canada’s economic growth rate for 2017 and 2018 at or near the top of the heap among advanced economies. According to the Washington-based International Monetary Fund’s (IMF)estimates, Canada’s gross domestic product for 2017 will account for 3.0%, which is half a percentage point higher than it was in July.
Canada’s Economic Growth
The above-mentioned growth would make Canada go ahead of all the other Group of Seven countries, with the USholding the2ndplace at 2.2% growth from 2016. The Paris-based Organization for Economic Co-operation and Development (OECD has also reported that Canada would top the G7 countries in 2017.The latterprojects Canadian year-over-year (YOY) growth rate will drop 2.1% in 2018, which is still 0.2%higher than the IMF’s July update and 2ndhighest among the G7 behind the US at 2.3%.
Canada’s economic growth is anticipated to fall over the upcoming few quarters. However, it’ll continue to surpass the rate of potential output, as a top official at the Bank of Canada notes.
According to Deputy Governor Sylvain Leduc, the central bank projects entry rates of new firms will increase and business exits will decrease over the next quarters. Based on the most recent data, the entry rate for new firms seems to have stabilized over the last few quarters.
What to Expect
Leduc says that when the economy’s operational level is higher than the potential output, inflation tends to accelerate. Otherwise, it’ll decelerate. Thanks to an increase in productive capacity resulting from new firm creation, the economy will grow faster without inflationary pressures.
There’s a significant increase in productivity since mid-2016. According to Leduc, it was alarming that “gazelles” share in the Canadian economy has fallen into a noticeable decline since 1997.
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According to analysts in the field, the bank will go on raising interest rates, but bets on an October rate hike fell after Governor Poloz mentionedthat no predetermined path for rates existedand that future moves from the Bank of Canada would be specifically dependent upon data.Leduc notes there still exist significant impediments, as the productivity is still well below that observed south of the border.
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