Photo: James Bombales
What is in store for the Canadian economy in 2018? While nothing’s for certain, a cooling housing market could play a role in slowing GDP growth.
According to a Desjardins December 2017 economic and financial outlook, some provinces would be hit harder than others by a cooling housing market.
“The recent growth leaders, Ontario and British Columbia, could be particularly hard hit by the expected slowdown in the housing market,” reads the report. “As we know, Toronto and Vancouver are where the housing market grew so extensively in recent years.”
That forecasted slowdown would come on the heels of a new mortgage stress test which will come into effect on January 1, and require all insured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract rate plus an additional 2 per cent.
“We can expect residential investment to slow down next year after the new restrictive guidelines come into effect,” reads the report. “However, it remains to be seen whether the housing market adjustment will just be temporary, as happened when other restrictive measures were ordered, or whether this will be the start of a true decline.”
Temporary or not, the first few months of 2018 may be rough for Ontario, as the market cools. “Ontario could lose one of its main growth drivers of recent years,” reads the report. “In these circumstances, Ontario’s real GDP would increase by 2.3 per cent in 2018 and 1.8 per cent in 2019.” The province experienced GDP growth of 3 per cent in 2017.
As for BC, after a year of record 3.8 per cent GDP growth, Desjardins predicts a similar slowdown as the mortgage stress test and higher interest rates take their toll. The credit union predicts growth will slow to 2.5 per cent in 2018 and 1.9 per cent in 2019.
As for the national GDP growth rate, Desjardins is forecasting a 3 per cent increase at the end of 2017, followed by a 2.3 per cent increase in 2018 and 2.1 per cent in 2019.
“After an estimated gain of 3 per cent in 2017, the year 2018 could end with a 2.3 per cent increase in GDP,” reads the report. “The Bank of Canada kept its monetary policy unchanged in December, but monetary tightening could be announced in the coming months.”