Question

Discuss the growth prospects of the Canadian economy in the next two years. What growth strategies would you recommend? (Keep in mind the structure of the Canadian Economy and the fact that it is an open economy.

Answer 1

The Canadian economy had 2.1% economic growth in 2018 and which was a bit less when the economy had a growth of 3%.However in the next two years economic expansion will be there with focus on investment and exports.So Canadian businesses can sell more which will give opportunity for diversification of the market and the economy will surely move ahead. Employment will increase as a result ,and the employment rise was 219,000 jobs in the last one year.More jobs will give a boost to spending by consumers.The bank of Canada is trying to keep interest rate low so that consumers can take loans and spend.This will lead to growth.The country is utilizing its labor and capital to full capacity and the economy will grow 2% in 2019.If oil prices improve ,Canada's growth will improve further.Trade tensions may be there but this will not stop the expansion of the economy.Even though import tariffs have been rising, US business investment and consumer spending has increased and the spillover effects will  also effect Canada as American purchase increases.The US expansion will continue next year and there will be appreciation of the US dollar.This means Canadian dollar will remain low which will make exports cheap in Canada and tourism will also increase.In spite of labor shortages, technology change,trade tensions ,rise in interest rate,there will be increase in exports , investment and employment and the Canadian economy will grow steadily in the next two years.

Reducing budget deficit will help the economy.Fiscal policy would remain neutral but reducing the budget deficit will reduce the burden on monetary policy and the economy may be supported when the event of unexpected downturn in the economy arises. The government should monitor the effects of tightening the economy specially the existence of highly indebted borrowers and see that the tightening effect do not decline.Attention should be focussed on reducing poverty,developing the infrastructure, a skilled workforce,involving women as income earners , developing agriculture etc.