The Conference Board of Canada now expects the Canadian economy to grow 2.0% in 2018, up 0.2 percentage points from its previous forecast. However, it is projected to then slow to 1.8% in 2019.

Employment growth has weakened significantly. The Conference Board expects the economy to add 213,000 jobs in 2018, compared to the 337,000 new positions created last year. While gains in average weekly wages also slowed recently, wages are still expected to grow by 3.1% this year before weakening significantly next year. When combined with the high level of household debt, real consumer spending is expected to advance at a slower pace than in recent years.

“The Canadian economy performed well in the second quarter of 2018, with consumers increasing their pace of spending, businesses raising investment in their capital stock and a double-digit increase in exports,” said Matthew Stewart, director, national forecast. “However, significant challenges remain, which will slow growth over the remainder of the year and into 2019.”

Reuters reported gross domestic product grew at an annualized rate of 2.9% in the second quarter of the year, short of economists’ expectations for 3.0% but ahead of the Bank of Canada’s estimate of 2.8%.

If the US imposes significant tariffs and Canada retaliates, The Conference Board of Canada expects there would be 1.3% hit to Canada’s economic growth over a two-year period.

The economic acceleration in the second quarter took a significant portion out of the economy’s excess capacity. Consequently, the Conference Board expects the Bank of Canada will raise its interest rate in October and raise rates three times in 2019.