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CME 2017 Year in Review & 2018 Economic Outlook
Canadian Manufacturers & Exporters (CME) economist Mike Holden reviews the economics highlights of 2017 and provides an overview of things manufacturers should watch for in 2018.
Economists, we are told, are either always wrong, have too many hands, or hold more than one opinion each. The main risk to our outlooks is that many of the things that can swing the tide of economic growth are inherently unpredictable – wars, natural disasters, OPEC pricing decisions, stock market corrections or even US policy formation since 2016. That said, here are five known unknowns: issues, policy actions and events that we know are coming but whose impact is unclear. These issues will dominate headlines and business decisions in 2018 and could affect the outlook for the Canadian economy and the manufacturing sector specifically.
- Minimum wage increases. Opinions are divided and the rhetoric is heated. Basic economics suggests that employers will look for ways to minimize the impact. But will the promised benefits override the expected negative consequences?
- Canada-US trade relations. Literally no one knows what will happen to NAFTA in 2018, but Canada’s tough stance at the WTO suggests that our negotiators are not going down without a fight. The question is, will all this uncertainty drive risk-hedging investment out of Canada into the US?
- The impact of the US tax bill. The business tax climate in the US has suddenly improved considerably and with that comes concerns about Canada’s own tax competitiveness and ability to attract new investment. Will Canadian governments respond? Will we see more migration of investment out of Canada into the US?
- Capacity constraints in manufacturing. 2017 may have been a good year for Canadian manufacturing, but many businesses are running at close to full capacity, leaving very little room for growth. Will 2018 be the year we finally see investment in new manufacturing facilities in Canada? Or will output growth begin to stagnate?
- Government fiscal sustainability. Persistent budget deficits federally and in many provinces, are not a problem as long as they are relatively small, temporary, and counter-cyclical. Deficits outside Alberta and Newfoundland are modest, but economic growth will be slower and interest rates will be higher. Is there a path to fiscal balance?
Read the full report here