While the outlook is for firmer and more geographically balanced growth in 2017, the Canadian economy faces major downside risks from the incoming Donald Trump administration’s trade policies and Republican-backed corporate tax reforms, says a report by CIBC Capital Markets. These risks will impede the Bank of Canada’s ability to tighten monetary policy, the report says. “We would need a huge and unlikely upside surprise to push the Bank of Canada into a rate hike this year,” says Avery Shenfeld, chief economist at CIBC. “Particularly since the Trump administration’s trade-policy-by-Twitter and a Republican-backed corporate tax reform plan biased against import content both represent major downside risks if Canada gets caught in the crossfire.” In that more negative scenario, he expects the Canadian dollar to come under pressure. “The shock to U.S.-bound exports would engender a much steeper slide in the Canadian dollar, well beyond $1.39 Canadian per U.S. dollar we expect to see on monetary policy differentials,” he says. CIBC forecasts Canada’s real GDP growth at 1.8 per cent in 2017 and two per cent in 2018. “A modest rebound in energy sector capital spending and ongoing oil output gains will add a full percentage point to growth, a lot of that showing up in Alberta’s climb out of recession,” says Shenfeld.
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