Forecast 2017: Trash Talk, Unhappy Returns

When anti-trade rhetoric turns into reality, Canada’s economy will feel the pinch

The essentials

Economic forecast for 2017:

  • Real GDP growth rate of 1.75%
  • Inflation rate rise to 1.75%
  • Unemployment rate unchanged 7.0%
  • Interest rate (prime) unchanged at 2.7%
  • Exchange rate (US/CDN) unchanged at 0.75

Uncertainty from the U.S. election and a rise in anti-trade rhetoric will mean slow export growth, reduced business investments, and increased inflation for Canada in 2017.

Evan Dudley, assistant professor of at Smith School of Business, made his predictions for the Canadian economy at the annual Smith Business Forecast Luncheon.

“It’s not just Donald Trump and the challenges ahead for Canada-U.S. relations that should concern us,” Dudley said. “The world is shifting towards greater protectionism. In the last six months alone, 145 new trade restrictions were imposed globally.”

Slow export growth, reduced business investments, and trade uncertainty will constrain output for Canada. The coming year may see marginal growth in Canada’s real GDP, up 1.75 percent from 1.40 percent in 2016. As well, persistent low oil prices and the difference in monetary policies between the U.S. and Canada will keep the value of the loonie down, with the Canada/U.S. exchange rate holding at $0.75 USD, Dudley predicted.

Trade restrictions and expansionary fiscal policy on both sides of the border will push prices higher in the near term, with inflation expected to rise to 1.75 percent from 1.5 percent in 2016. The Canadian unemployment rate will remain around 7 percent due to uncertainty about U.S. economic policies under the Trump administration and low business spending in Canada.

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