September 20, 2017 11:40 am

Canada’s economic forecast raised, now best in G7 this year: OECD

The OECD, an influential, Paris-based economic think-tank, as raised its 2017 growth forecast for Canada, which is now expected to outperform every other country in the G7 group of advanced economies.

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The Organization for Economic Co-operation and Development (OECD) has raised its expectations for economic growth in Canada this year as part of its interim outlook on the global economy.

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The Paris-based economic think tank now expects the Canadian economy to grow by 3.2 per cent this year, outperforming every other country in the G7 group of advanced economies (i.e. France, Germany, Italy, Japan, the U.K., and the U.S.).

READ MORE: Canadian economy smashes expectations with 4.5 per cent growth

In June, the OECD expected Canada’s 2017 growth to come in at 2.8 per cent. The organization maintained its Canadian outlook for 2018 at 2.3 per cent.

WATCH: Canada’s unemployment hits the lowest level since 2008

The think tank’s interim economic outlook didn’t contain any details about what’s driving Canada’s upward revision. Its June forecast noted the economy was gaining steam, propelled by government spending on infrastructure, social housing, education and innovation, as well as rising household wealth and rebounding business investment, particularly in the resource sector.

The Canadian economy has consistently beat analysts’ expectations this year, most recently by recording growth of 4.5 per cent between April and June this year, which was far above the consensus forecast of 3.7 per cent.

Higher commodities prices are contributing to export gains, while a healthy job market is underpinning household spending.

In August, the unemployment rate dropped to its lowest level in nine years.

READ MORE: Ontario drives Canada’s jobs gains in August, unemployment lowest in 9 years

The Bank of Canada has cited solid and broad-based growth in its decision to start lifting interest rates from historic lows. Canada’s central bank raised rates twice this summer, for a compound increase of 0.5 percentage points, from 0.5 per cent to 1 per cent.

READ MORE: Bank of Canada raises interest rate to 1% – and that’s not the end of it, economists say

Lower interest rates generally stimulate economic activity, by making it cheaper for firms and consumers to borrow.

READ MORE: An 87 cent Canadian dollar next year? Could be

Higher interest rates usually have a cooling effect on growth, helping to keep inflation in check.

WATCH: Bank of Canada says economy can handle hikes to interest rates

The OECD forecast for the rest of the world

The OECD kept its forecast for global economic growth unchanged at 3.5 per cent for this year and upped it slightly, to 3.7 per cent from 3.6 per cent, for 2018.

Expectations for the U.S. were unchanged at 2.1 per cent this year and 2.4 per cent next year.

“Job creation has remained strong, but the extent to which fiscal easing and regulatory reform may provide an additional boost in 2018 remains uncertain,” the organization wrote about the U.S. in a press release.

READ MORE: Trump calls infrastructure permitting process ‘self-inflicted wound’ to U.S. economy

Globally, the pace of expansion is expected to pick up this year compared to 2016, with a further uptick projected in 2018. However, “strong, sustainable, and inclusive medium-term growth is not yet secured,” the OECD wrote.

Wage growth, in particular, has been “disappointing on average, and not equitable across workers.”

– With files from the Canadian Press

© 2017 Global News, a division of Corus Entertainment Inc.

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