While Vanguard has had to adjust some of its predictions from the beginning of the year, its report is generally positive on the Canadian economy.
It is forecasting a 4% gross domestic product (GDP) growth, which is less than the 5% that it began the year with. But, it sees the higher oil and gas prices boosting the GDP, even as they undermine consumers’ purchasing power. It also noted that population growth is supporting the real estate sector, despite the pressure from rising interest rates, and Hasanjee felt that what’s happening in the real estate market would be a “healthy correction”.
Vanguard is also predicting that the Canadian inflation rate, which has been steadily climbing, will drop to 4.5% to 5% by the end of the year. It noted that economic and labour market strength will likely keep headline inflation elevated through 2022 with energy, food, and shelter prices remaining high. But, the anticipated Bank of Canada rate hikes should help to temper core inflation to this level by the end of 022 with further normalization toward a 2% target expected in 2023 and 2024.
Finally, Vanguard predicted that despite near record lows in the unemployment rate at this midyear point, it may rise to 5.5% in the second half of the year as financial conditions tighten domestically and globally. But, it felt currently elevated job vacancies and accelerating wage growth suggest that the labour market should remain healthy even as the Bank of Canada continues to rein in inflation.
Hasanjee said this is a better picture than what other countries are expecting by year-end.
