9 Trends Expected to Shape Canada's Economy in 2019

Coming off a year of volatile markets, trade uncertainty and interest-rate hikes, what does 2019 have in store for the Canadian economy? In a new report titled Navigating 2019: 9 big insights for the year ahead, published Jan. 3, 2019, RBC Economics breaks out some of the trends expected to shape the economy this year.

Here are some of the key themes highlighted in the report:

1. Household Wealth Constraints

After around 10 years of household wealth growth in this country thanks to low interest rates and a booming housing market, there could be a slower rate of appreciation over the next while, the report points out. "With interest rates now climbing, expect dynamics to change for both sides of households' balance sheets, not just liabilities. On the asset side, we see more limited growth prospects in real estate holdings. Our view is that housing prices will be largely flat in the near term (in part due to rising rates) and the ownership rate will decline in Canada, due to affordability issues."

2. Rate Hikes to Hit Pocketbooks

With interest rates on the rise (the Bank of Canada hiked rates three times last year), average households are expected to have to pay about $1,000 more in 2019 to meet debt obligations, a 7.6 per cent jump from 2018. Still, there's some good news that should help offset that: household income is expected to rise more than that. RBC economists expect average disposable income before debt-service obligations to grow by $2,300 per household this year. That means, the average Canadian household would end up with $1,300 more in its pocket after servicing debt, the report says.

3. Labour Shortages Could Spur Wage Growth

Canada's jobless rate hit a 44-year low in November and businesses surveyed by the Bank of Canada and other groups have consistently been saying they've been having a hard time finding and hiring workers. Historically, the report notes, worker shortages have spurred increases in wages. Interesting fact: Throughout the 2020s more than 270,000 people will retire from the Canadian labour market every year.

4. Automation Showing Up in Jobs Numbers

According to the report, we are starting to see the automation of certain jobs being reflected in labour statistics. The economists say that employment growth for jobs most "at risk" of being made obsolete by robots has declined over the past five-year period, while employment in “low risk" occupations soared. The report did note that not all "at risk" jobs saw declines; strong gains were seen for food service workers, administrative assistants and bookkeepers. "Still, we see no reason to expect this broader transformation of the job market to reverse."

5. Canada's Got a Growth Weapon: Immigration

Immigration accounted for nearly half of Canada's population increase in 2018. As the report notes, that contribution is only set to grow because of the country's commitment to boosting its annual immigration target from 310,000 new permanent residents in 2018 to 350,000 by 2021 — including a 6.7% jump to 331,000 this year. According to the report, about two-thirds of 2019's increase will come from the economic programs that target highly skilled workers and are aimed at addressing labour shortage issues across Canada.

6. Oil Moves to Play Out

Following Alberta's announcement it would buy 7,000 railcars and implement production cuts, OPEC followed with its own plan to cut production by 1.2 million barrels per day to boost oil prices. "Lower global supply means the market will get closer to balance in 2019. This is good news for Canadian producers as well," the report notes.

7. Oil Elbows Out Other Sectors in Rail

Canadian oil producers shipped more than 200,000 barrels a day of oil by rail last summer – a record high. But rising crude-by-rail shipments, the report notes, have served to elbow out other commodities such as grain and metals. Still, there may be some relief this year thanks to Alberta's railcar purchase and additional pipeline capacity, according to the report.

8. Competitiveness Measures

Canada's competitive landscape in 2019 should get a boost from two tax-related matters, the report says. One relates to the suite of tax measures contained in the government's Fall Economic Statement, including accelerated capital expensing. The other is thanks to Canada's corporate tax rate, which remains the third-lowest in the G7.

9. Trade Crossfires

A full-blown U.S.-China trade conflict would have "immediate and negative impacts" on Canada, the report notes. That could play out through stock market volatility that could affect business and consumer confidence, as well as tariffs potentially causing prices to rise. "The best Canada and the world can hope for is that the current trade truce not only holds, but leads to existing tariffs being scaled back."