Canada's economy going from a 'sprint to a marathon' pace

The Canadian economy's surprising runfor most of 2017 will likely start to decelerate this year as the country reaches its peak capacityfor rapid growth, experts say.

Gross domestic product (GDP) figures for November, to be released Wednesday, areexpected to show the Canadian economy grew 0.4 per cent from the previous month.

While that signalsasolid bouncefrom October's flat reading, it still falls below the 0.5 per cent or higher neededto meetthe Bank of Canada's growth forecast of 2.5 per cent for the fourth quarter.

Economists who spoke with CBC Newsexpect the numbers to show Canada's growth in the fourth quarter fell to around twoper cent, down froman average of about three per cent in the first half of the year.

They expect growth to fallfurther this year, to around two per cent, and then dip below two per cent in 2019.

"Canadian growth probably peaked in 2017 and will moderate into next year, but this is more about going from a sprint to a marathon-like pace than coming to a full stop," said Frances Donald, senior economist at Manulife Asset Management.

The experts say two per cent growth is still very healthy for a country like Canadabecause it'sabove thepotential growth rate the level of output an economy can produceat a constant rate of inflation.

'Meaningful shocks'

But agrowing list of uncertainties that includesthe rise of the minimum wage in Ontario and Alberta, new mortgage rules, NAFTAnegotiations and the impact of three recent interest rate hikes could create "meaningful shocks," Donald says.

Uncertaintyon the trade front, in particular, remainsone of the biggest issuesthe Bank of Canada will be dealing with this year when decidingonmonetary policy.

"At this point, we've got two more rate hikes pencilled in the second half of the year, but we'll see what happens withNAFTA," said Douglas Porter, chief economist atBMOFinancial Group.

Royce Mendes, senior economist atCIBCWorld Markets, says increases in the central bank's benchmark interest rate usually takeabout six to eight quartersto filter throughthe economy as a whole and affect consumer spending habits.

"It's maybe a little bit faster than that nowadays, but it still takes time, and I don't think we've fully seen the effect of past rate increases," he said.

Canada vs. world

While Canada's growth is expected todecelerate, experts are less united onwhether the rest of the world will follow.

Last week, the International Monetary Fund (IMF) raised its global growth forecast for 2018 and 2019 to 3.9 per cent, up0.2 of a percentage pointfrom its estimate in October.

The IMF said sweeping tax cuts inthe U.S. are likely to boost investment in the world's largest economy and help its main trading partners.

But BMO's Porter saidCanada will only get a "littlebenefit" from tax reforms in the U.S., because it's still mostly a U.S. story.

The IMF expects the U.S. to grow by 2.7 per cent this year, up from 2.3 per cent in 2017.

CIBC's Mendes saysthe tax cuts will actually hurt Canada's competitiveness by making it more difficult to attract new businesses andtalent.

"Astronger U.S. economy will always support growth in Canada, but loss in competitiveness hurts us in attracting capital or people."

However, as Manulife's Frances Donald points out, a cheaper Canadian dollar and growing foreign demand for Canadian goods should be a helpful combination for exporters this year.