Consumer spending growth helped bolster Canada’s economy in 2016, despite sluggish job growth and wage gains – but swelling household debt will limit that spending growth, the Conference Board of Canada said Thursday.

In its annual provincial outlook report, the Conference Board expects 2017 real GDP growth of 1.9 per cent, with federal stimulus accounting for 0.3 percentage points of the increase – but low business investment and slow labour force growth means “we are unlikely to see any acceleration in real GDP growth in 2018.”

The think tank estimated that Canada’s economy grew only 1.3 per cent in 2016, held back by weak business investment and a trade sector that “failed to find traction” with a lower loonie the past two years. In an interview, report author Marie-Christine Bernard said that about 0.8 percentage points of the 1.3-per-cent growth – more than half – came from consumer spending.

Canadians now hold record amounts of debt, owing $1.67 for every dollar of disposable income. The Conference Board estimates Canadian retail sales grew 3.8 per cent last year, to $533-billion, but will slow to 2.9-per-cent growth in 2017.

It’s been a “quite difficult” couple of years for Canada’s economy. “Difficulties in the resources and energy sector in Alberta and Saskatchewan were probably a good part of the weakness,” Ms. Bernard told The Globe.

Ms. Bernard, an associate director with the Conference Board, said that the relative lack of Canadian business investment went beyond the oil and gas sector to machinery and equipment as well.

In terms of sluggish exports, “we were puzzled by the fact that they didn’t perform better because of the depreciation of the Canadian dollar,” she said.

Her research suggests Alberta will lead the provinces in 2017 with 2.8-per-cent real GDP growth, but will fall into fifth place in 2018, at 1.9 per cent.

British Columbia, which had Canada’s fastest economic growth the past two years, is forecast to slow to 1.9 per cent. Ontario, too, will slow to 2 per cent growth in 2017, from 2.7 per cent last year.

The Conference Board suggests that tightened mortgage rules will slow Canada’s housing market, particularly in those two provinces.

The forecast also suggests Newfoundland and Labrador will see a remarkable single-year turnaround, contracting 1.8 per cent in 2017 but rebounding 4.4 per cent in 2018, thanks in large part to the planned opening of the Hebron oil field. But if oil production is removed from GDP calculations, its economy is forecast to decline for the next four years.

Ms. Bernard cautioned that uncertainty around the future of U.S. President Donald Trump’s trade policies were not factored into the report’s forecasts. While his protectionist approach may change the North American free-trade agreement, there could be some stimulative changes as well, Ms. Bernard said.

“They’re optimistic about the coming years in terms of the slower resumption of growth,” said Herb Emery, the Vaughan Chair of Regional Economics at the University of New Brunswick and a former managing editor of the journal Canadian Public Policy. “The puzzle that’s behind it is, what’s really changing to create that optimism?”

Housing will have a major impact in Alberta, as fire-damaged Fort McMurray rebuilds more than 2,500 dwellings in the next few years. This, Ms. Bernard said, could contribute up to 0.4 percentage points of the projected 2.8-per-cent growth for Alberta in 2017. While oil production is expected to rise this year, prices will likely remain low, dragging down the province’s projected GDP growth to 1.9 per cent in 2018.

“There were a lot of investments in the oil sands over the last five or six years – some of these projects are almost completed, and that will add to oil production and exports, and will help lift GDP growth,” Ms. Bernard said. “But it will take several years.”

Quebec saw economic growth and improved job creation, but the report warns that its aging population is “structurally changing” its growth potential.

The research paints a familiar picture of Atlantic Canada: between retiring older workers and youth moving away, the labour force is squeezed.

“They can’t really grow their population by natural increases any more,” the author said. “If you don’t have labour supply, you can’t really grow your economy.”

JOSH O’KANE
The Globe and Mail
Published Thursday, Feb. 23, 2017 8:04AM EST
Last updated Thursday, Feb. 23, 2017 4:22PM EST