Engaging the Biden administration on trade will be key to Canada's long-term economic fortunes, shows latest RSM Canada report

• A trade boost with the U.S., alongside effective vaccine distribution, would put Canada on track for robust two-year growth
• Canada's output will likely expand four per cent in 2021 & 2022, though its economy likely won't reach full potential until 2023
• Addressing oversupply of labour and growing infrastructure deficit will be necessary in order to reinforce economic recovery efforts

TORONTO, Jan. 19, 2021 /CNW/ - RSM Canada ("RSM"), the leading global provider of audit, tax and consulting services focused on middle market businesses, today launched its first 2021 issue of "The Real Economy: Canada" – a quarterly report that provides Canadian businesses with economic analysis and insights into factors driving growth, or economic headwinds, in Canada's middle market.

As Canada tackles its most serious wave of the COVID-19 pandemic to date, and its biggest trading partner - the United States – is set to introduce a new President this week, the latest Real Economy: Canada report shines a light on how the country's trade and economic prospects can benefit from improved U.S. relations and a strong vaccination response in the coming months.   

The report also examines what the federal government must do to address Canada's daunting infrastructure deficit as it looks to get the country's economy back on track.

Key findings in this quarter's report include:

1. Canada's long-term economic prospects will largely depend on expansion of U.S. and global trade

• Canada's economy is the most dependent on trade among large, developed nations. It can expect a boost if the Biden administration re-enters the U.S. in the Trans-Pacific Partnership (TPP).
• From 1961 to 2019, the importance of international trade to Canada's economy has nearly doubled, with total exports and imports accounting for 67 per cent of Canada's GDP in 2019.
• Canada poised to make significant economic gains should the U.S. end its trade war with China, which analysis shows has harmed Canada nearly as much as the U.S. given integration between the two economies.

2. Economic growth shows promise, but will be uneven across sectors

• Canadian output will likely expand four per cent in 2021 & 2022, though economy won't reach full potential until 2023.
• Gains in 2021 likely uneven across sectors until vaccine is widely distributed, while "energy-intensive" parts of Canada will face greater difficulties than others.
• Nonfinancial corporations are poised to lead Canada out of recession following their quick turnaround, helped by a likely decline of U.S. trade barriers.

3. Service sector job shortage and spike in household savings remain a concern for the economy

• Continued oversupply of labour threatens to drag wages down and reduce household income and consumption.
• Canadian households continued propensity to save during the pandemic, despite increases in disposable income, will be a concern for fiscal authorities should lack of household spending turn a supply shock into a demand shock.
• Households were saving on average as much as 27.5 per cent of disposable income during pandemic, in comparison to 1.4 to 2 per cent in the first quarter of 2020.

4. Decades of underinvestment leaves Canada with a daunting infrastructure deficit

• Deficit ranges from $110 billion to $270 billion, though Canada is investing enough to start reducing the shortfall.
• The federal government has signaled a major infrastructure program to provide needed stimulus to reinforce the economic recovery from the pandemic.
• Decelerating labour productivity growth rates in Canada and the U.S. – a key driver of long-term economic growth – are directly related to decreasing infrastructure investment levels.

"Given Canada's historic over-dependence on trade, as well as its integration with the U.S. economy, it's difficult to think of anything that could have a greater impact on Canada's long-term recovery than the U.S. re-entering the Trans-Pacific Partnership (TPP)" says Alex Kotsopoulos, partner, projects and economics with RSM Canada. "This was a deal that President Trump walked away from in 2017, but the incoming Biden administration has hinted at its intent to re-enter the agreement, while also potentially ending the country's trade war with China. Both actions could lead to substantial economic benefits for countries like Canada, which have been harmed by association through these trade disputes in recent years."

Joe Brusuelas, chief economist with RSM US LLP, added: "Once the vaccine is in place and case numbers drop down, we'll start to see the Canadian economy gradually reopen and when you pair that with a stronger, more fruitful trade relationship with the U.S., we're in a good place to see robust growth over the next two years. However, it's not going to be plain sailing - the large supply shocks felt across North America as a result of the pandemic will take a number of years to repair, with damages to the labour force and a decline in investment and productivity resulting in lower output."

For more information on RSM Canada's 'The Real Economy: Canada', or to download the report, please visit: https://rsmcanada.com/our-insights/the-real-economy/the-real-economy-canada-volume-8.html

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SOURCE RSM Canada