Canada’s Next Growth Phase

Canada, Australia & other developed economies

• Arunima Sinha · Morgan Stanley

  Canada's medium-term outlook is constructive: capital deepening and tech diffusion can lift potential growth from about 1.5% to 1.75%-2% by the 2030s.

  Morgan Stanley is constructive on Canada's medium-term outlook, arguing near-term trade uncertainty is clouding the opportunity for global investors. Over the next three to four years the growth model can pivot from export-led growth to capital deepening and wider technology diffusion, lifting potential growth from about 1.5% to closer to 1.75%-2% as Canada enters the 2030s. Large capital pipelines are already in place, so the build-out doesn't start from scratch. Near-term constraints (trade, weak productivity, underinvestment) are acknowledged as real.

  “We think that the near term uncertainty around trade is actually clouding the opportunity for global investors.”at 0:49

• Arunima Sinha · Morgan Stanley

  Canada's working-age population will keep rising through 2045 while developed peers shrink, giving it a window to accelerate growth.

  Although near-term population growth is slowing, the longer-run demographic picture is unchanged: Canada's working-age population is projected to rise about 3% by 2035, 5% by 2040 and 6% by 2045, while most developed-economy peers will see shrinking working-age populations. This gives Canada a window through the rest of the 2030s to keep accelerating its growth model.

  “Canadian working age population is going to rise by about 3% by 2035, by 5% by 2040, and 6% by 2045. Meanwhile, most of the developed economy peers are going to see shrinkage in their working age populations.”at 3:27

• Arunima Sinha · Morgan Stanley

  Canada's growth upside hinges on investment broadening beyond concentrated big projects into machinery-intensive, higher-productivity-gain sectors over the next few years.

  Announced capital pipelines are heavily concentrated: utilities, oil and gas, and transportation make up only about 13-14% of gross value added but more than half of announced pipelines, and spending skews toward structures rather than machinery and equipment. The growth upside depends on crowding in private investment into higher-productivity-gain sectors such as finance and information services, and on spreading beyond big projects into machinery-intensive sectors like construction, manufacturing, agriculture and wholesale, where technology adoption is low and productivity gaps are large. Whether that broadening happens is the key test over the next few years.

  “The test for the next few years is going to be whether the investment that's being undertaken in a few sectors spreads beyond the big projects, and it really lifts productivity across the economy.”at 4:02