Canada on Track for Durable Growth as Investment Pipeline Takes Hold
Morgan Stanley is optimistic about Canada's economic prospects, predicting that it will enter a more durable growth phase. According to the bank, investment, capital deepening, and productivity gains are gradually replacing population and labour-force growth as the main drivers of the economy.
The bank estimates that completing projects already in the pipeline could add around 20 basis points to medium-term growth, moving potential growth towards 1.7%. However, reaching a growth rate of 2% would require capital formation to broaden beyond its current concentration and productivity to improve in industries such as construction, manufacturing, wholesale, and agriculture.
Morgan Stanley notes that Canada is 'investment-starved, not capital-starved', with deep pension and institutional balance sheets. However, the bank also highlights the constraint of whether domestic projects can generate sufficiently attractive risk-adjusted returns. Faster depreciation, permitting reforms, government guarantees, co-investment, and enabling infrastructure could lower investment hurdles.
The bank's outlook marks a shift from Canada's long-standing growth model, which has become increasingly reliant on population and labour-force expansion amid weak productivity and falling GDP per capita. Morgan Stanley expects the first stage of acceleration to extend through the end of the 2020s, as greater capital per worker helps raise productivity.