Since 2008, Canada’s farm economy has continued to expand as net farm income has increased, spurring investment in technology, land and machinery. Although growing world stocks of grains and oilseeds have caused prices to soften from recent peaks, Canada’s farm economy is expected to remain stable. The Canadian economy is not expected to significantly improve in the short-term, keeping interest rates low and the Canadian dollar at a favourable exchange level.
No movement in interest rates expected in 2016
On July 13, the Bank of Canada released its outlining their forecast for the overall Canadian economy. According to the report, Canada’s gross domestic product will grow by 1.3% in 2016 as business investment remains subdued and export growth struggles.
The Bank of Canada uses interest rates as a lever to target inflation between 1% and 3%. Currently, the Bank expects inflation to remain near the 2% target through 2017. Consequently financial markets have predicted a 3.3% chance that interest rates will increase in 2016.
U.S. economy not expected to fuel expansion
Canada’s economy is expected to grow by 2.2% in 2017 on improved export opportunities, primarily to the U.S. in non-energy sectors. The bright spot for Canada is that the U.S. labour market continues to show signs of improvement (wage growth, strong hiring, and reduction in new unemployment insurance) further stimulating increased demand of Canadian exports.
The overall slow improvement in the Canadian and U.S. economies is expect to support stable health in Canada’s farm economy. Weak economic growth will continue to support low interest rates and ultimately asset values for producers. Conversely, a slow recovery in the labour markets is expected to cause consumers to be cautious about spending more money on food and other goods. This will limit major expansion in the overall demand of agriculture commodities.