•World GDP growth, which has been trending down in recent years, is on track to hit roughly 3% this year, the slowest pace since 2009. China’s economic rebalancing, tight fiscal policy, underinvestment, elevated debt levels, deteriorating demographics and the rise of trade protectionism are all to blame for this moderation in global growth. So, unless policymakers address those structural forces via growth-enhancing policies and reforms, don’t expect much of an improvement in economic growth in 2017.
•Despite ongoing challenges such as soft investment and a strong dollar, U.S. economic growth is on track to accelerate after an awful first half of 2016. Inventory rebuilding will give a boost to output although that does not guarantee strong job creation given persistently weak productivity growth and declining corporate profits. The Fed thinks the case for a rate hike has strengthened and will likely press the trigger in December, i.e. after the elections. But a subsequent long pause can be expected considering challenges brought by a weak economic potential and a strong dollar. We are keeping unchanged our GDP growth forecasts for the U.S. at 1.6% and 2.0% for this year and 2017 respectively.
•Canada’s economy is rebounding nicely after a difficult second quarter. Exporters saw improving sales in July, and consumers are enjoying the benefits of the enhanced Canada Child Benefit. However, investment remains disappointing, hurting economic growth not just contemporaneously but also in the future via a lower potential. We are keeping unchanged our Canadian GDP growth forecasts for both this year and next at 1.2% and 1.8% respectively. Unless the upcoming fiscal stimulus from the federal government is targeted effectively as to lift the economy’s potential, Canada will be stuck in low-growth mode. Facing a lower real neutral interest rate, also a result of declining potential growth, the Bank of Canada will have no alternative other than keep the overnight rate low for years to come.