Canada markets closed

Why Canada will avoid a recession in 2020

And unpredictable President Donald Trump and Canadian federal government spending are risks to the economic outlook (Reuters)

Despite all of the gloom and doom about a slowing global economy, it appears Canada may avoid a recession over the next two years.

The Conference Board of Canada forecasts 1.8 per cent GDP growth in 2020 and 1.9 per cent in 2021, in a new report.

Wage growth and increased labour force participation are key sources of strength, a result of the 400,000 new jobs added in 2019.

“Labour market conditions remain tight, and that is pushing up wages,” read the report.

“Better income growth is leading to a more upbeat outlook for consumer spending.”

It also means Canadians will have more money to spend on real estate, which will contribute to economic growth.

“The aggregate Canadian market for both new and existing homes is heating up, thanks to brisk employment and population growth and low mortgage interest rates,” read the report.

“These factors appear to have overcome government policies designed to temper demand.”

Better days ahead for Alberta

The Conference Board of Canada also calls for a return to form for the oil patch.

“The outlook for production out of Alberta has brightened significantly, even as we head into the new year with curtailments still in place,” read the report.

“On top of expected improvements in takeaway capacity on existing pipelines, the Alberta government will grant exceptions to the curtailment for producers developing new conventional wells and those bringing new production online for rail export.”

Cenovus announced the rail exception means it will bring its dormant Christina Lake Phase G oil sands facility fully online — resulting in an additional 50,000 barrels of oil per day.

Risks of going off the rails

There are risks to the Conference Board of Canada’s outlook, including the spillover effects of trade conflicts being stoked by the Trump administration.

It looked like cooler heads would prevail when the U.S. and China announced an agreement on phase one of a trade deal.

“But the unpredictable Donald Trump then turned around and shocked markets in December by reimposing tariffs on imported steel from Brazil and Argentina,” the report said.

 “He then threatened to implement a 100 per cent tariff on imported sparkling wine, cheese, and handbags from France in retaliation for that country’s imposition of a digital services tax.”

The report added that Liberal government’s plans for increased deficit spending could also come back to haunt us if things go south.

“Any economic downturn or drop in revenues could see the deficit increase rapidly, and with it, federal debt levels and debt repayment costs.”

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

Download the Yahoo Finance app, available for Apple and Android.