OTTAWA — The Canadian economy is poised for a sharp rebound this year and next after a year of pandemic-related disruptions, according to a new report from the Conference Board of Canada.
The report, released on Tuesday, predicts that the economy will grow at a rate of 4.5% in 2021 and 3.8% in 2022, driven by pent-up consumer demand and higher oil prices.
Pent-Up Demand to Drive Rebound
"The devastating impacts of the pandemic have created a significant backlog of unmet consumer demand for tourism and recreational services," said the report. "We expect to see a strong rebound in spending on services once restrictions are lifted."
The Conference Board expects oil prices to average US$68 per barrel in 2021 and US$71 per barrel in 2022, partly filling a gap that has persisted since mid-2015 when oil markets collapsed.
Investment in Commercial Real Estate to Taper Off
Meanwhile, investment in commercial real estate is expected to taper off, largely due to a wider acceptance of work from home practices and uncertainties about when workers might begin to return to the office on a regular basis.
However, residential construction activity is expected to increase last year and additional gains are anticipated in 2021 as well.
US$1.9-Trillion Stimulus Package to Boost Canadian Exports
The US$1.9-trillion stimulus package recently passed in U.S. Congress will see "a sharp rebound in economic activity south of the border," which will feed into Canadian exports.
However, exports will continue to lag behind past years in Canada as dependency on foreign imports continues to grow.
Robert Kavcic Warns About Pace of Growth in Real Estate Markets
Robert Kavcic, senior economist at Bank of Montreal, also warned about the pace of growth in Canada’s real estate markets, saying Ottawa should intervene in order to cool things down.
"We believe policymakers need to act immediately, in some form, to address the home price situation before the market is left exposed to more severe consequences down the road," Kavcic said. "As it stands now, prices are going parabolic across a number of markets and the price strength appears to be feeding on itself."
Lack of Pipeline Capacity a Downside Risk
Economists at the Conference Board do warn about a lack of pipeline capacity, and point out that growing opposition to the Enbridge Line 3 pipeline is a downside risk to the sector’s investment outlook.
The report concludes that despite the challenges facing the Canadian economy, it is poised for a strong rebound once COVID-19 restrictions are lifted.
Key Takeaways from the Report
- The Canadian economy is expected to grow at a rate of 4.5% in 2021 and 3.8% in 2022.
- Pent-up consumer demand and higher oil prices will drive the rebound.
- Investment in commercial real estate is expected to taper off.
- Residential construction activity is expected to increase last year and additional gains are anticipated in 2021 as well.
- The US$1.9-trillion stimulus package will boost Canadian exports.
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About the Author
Jesse Snyder is a reporter for the National Post. He can be reached at jsnyder@postmedia.com or on Twitter @jesse_snyder.
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