Over the long run Canadian real GDP is expected to grow at 1.8% annually, reflecting relatively weak productivity and modest labour input growth, slightly weaker than the Bank of Canada’s assumption (1.9%). Real GDP growth in the US is assumed to be 1.9% in the long run.
During 2018–23 the US and Canadian economies are expected to evolve in parallel, entering excess demand before easing back to equilibrium by the end of the forecast horizon (chart 1).
Following a temporary boost in 2018–20, largely due to the impact of fiscal stimulus in the US, growth in Canada and the US is forecast to slow significantly in 2021–22, in part because of rising interest rates, making the North American economy vulnerable to shocks, including rising global protectionism.
Inflation is expected to rise above the 2.0% targets in Canada and the US, before settling at 2.0% in 2022–23.
Facing the build-up of excess demand and rising inflationary pressures, both the US Federal Reserve and the Bank of Canada are expected to gradually raise the overnight rate towards 3.0% which is reached in 2020Q1 for the US and 2020Q4 for Canada.
FULL REPORT: SCOTIA LONG-RUN 2018-2023