Robust growth ahead for Canadian economy, says RSM Canada

TORONTO, Jan.22, 2020 – Accounting and advisory firm RSM Canada says the United States will help drive robust economic growth over the next two years in Canada, once COVID-19 vaccinations have taken place. In Volume 8 of The Real Economy (Canadian edition), RSM Canada states that integrated trade with its largest trading partners hold the key to Canada’s economic fortunes. Canada will benefit from the reopening of the domestic economy coupled with a reduction in trade friction, though the economy is not likely to reach full capacity to produce until 2023. 

This week’s inauguration of U.S. President Joe Biden signals a new era in trade relations between the two countries. As The Real Economy suggests, “one might make the case that [the two nations] are one large integrated economy separated by two currencies.” President Biden’s executive order cancelling the permit for the Keystone XL pipeline — which was part of the Democrats party platform and telegraphed throughout the election campaign — occurred after the publication of The Real Economy. 

However, this edition includes an entire section on a rare economic opportunity for Canada, to be a leader in environmental technology called carbon capture and storage. “Rolling out such a technology in a broad way across industrial and energy sectors would lead to a significant reduction in harmful emissions while also providing an economic shot in the arm, just when Canada needs it most.” 

RSM Canada projects that the economic impact of three large-scale carbon capture projects would add $2.7 billion to GDP and support more than 6,100 construction jobs. “Act today, reap the benefits tomorrow,” urges the report. 

The Real Economy — Key Findings

Among the key findings in the RSM Canada report are: 

Canada’s long-term economic prospects will largely depend on expansion of U.S. and global trade

• Canada’s economy is the most dependent on trade among large, developed nations. It can expect a boost if the Biden administration re-enters the U.S. in the Trans-Pacific Partnership (TPP).
• From 1961 to 2019, the importance of international trade to Canada’s economy has nearly doubled, with total exports and imports accounting for 67 per cent of Canada’s GDP in 2019.
• Canada poised to make significant economic gains should the U.S. end its trade war with China, which analysis shows has harmed Canada nearly as much as the U.S. given integration between the two economies.

Economic growth shows promise, but will be uneven across sectors

• Canadian output will likely expand four per cent in 2021 & 2022, though economy won’t reach full potential until 2023.
• Gains in 2021 likely uneven across sectors until vaccine is widely distributed, while “energy-intensive” parts of Canada will face greater difficulties than others.
• Nonfinancial corporations are poised to lead Canada out of recession following their quick turnaround, helped by a likely decline of U.S. trade barriers.

Service sector job shortage and spike in household savings remain a concern for the economy

• Continued oversupply of labour threatens to drag wages down and reduce household income and consumption.
• Canadian households continued propensity to save during the pandemic, despite increases in disposable income, will be a concern for fiscal authorities should lack of household spending turn a supply shock into a demand shock.
• Households were saving on average as much as 27.5 per cent of disposable income during pandemic, in comparison to 1.4 to 2 per cent in the first quarter of 2020.

Decades of underinvestment leaves Canada with a daunting infrastructure deficit

• Deficit ranges from $110 billion to $270 billion, though Canada is investing enough to start reducing the shortfall.
• Decelerating labour productivity growth rates in Canada and the U.S. – a key driver of long-term economic growth – are directly related to decreasing infrastructure investment levels.

To read more, download “The Real Economy (Volume 8)” from RSM Canada.

By Canadian Accountant staff.