Canada’s economy is booming, and that’s good news for Justin Trudeau. The question is whether it can last until the next election.
Growth in May beat all forecasts, a 4.6% expansion on a yearly basis that was the fastest in 17 years. Canada is forecast to lead the Group of Seven in growth this year, data compiled by Bloomberg show.
Fortunately for Trudeau, Canadians are starting to feel it. Recent polls show his popularity stable or improving. His marks on the economy are particularly strong — half of those who voted for the rival Conservative Party, whose core political message is economic competency, give Trudeau a passing grade on the subject.
Yet one risk is the economy may be peaking too fast, politically. That might explain why Trudeau and Finance Minister Bill Morneau continue to say they will stick to their spending plan rather than tighten fiscal policy amid the expansion.
The Bank of Canada raised interest rates on July 12, and is expected to hike at least once more this year. Some officials within the Trudeau government are nervous the tightening began too soon, as Canadians carry ample debt.
Rates are now projected to rise heading into Canada’s 2019 election, while growth is forecast to fall. The last time a Liberal government entered an election in the middle of a monetary policy tightening cycle was in 2006; that year, Stephen Harper's Conservatives defeated them.
Output growth will peak this year at 2.6% and slow in each of the next two years to 1.9% in 2019, according to an economist survey. While still respectable — it’d be behind only the U.S. in the G-7 — it’s nowhere near the level of growth being seen today. Sustaining the current pace would be a tall order.
