Canada Set to Enter Two-Stage Growth Acceleration: Morgan Stanley
Morgan Stanley is predicting a multi-stage economic growth acceleration for Canada. The bank's research note suggests that investment, capital deepening, and productivity gains will become the primary drivers of the economy, replacing population and labor-force growth. This shift marks a departure from Canada's traditional growth model, which has relied heavily on population expansion.
The first stage of this acceleration is already underway, with potential economic growth reaching 1.7% due to increased capital per worker and resulting productivity gains. A second phase in the 2030s could further boost growth as Canada's demographic profile becomes more favorable, with working-age population growth remaining positive.
Morgan Stanley emphasizes that Canada is 'investment-starved, not capital-starved', citing deep pension and institutional balance sheets. However, the bank warns that domestic projects must generate attractive risk-adjusted returns to attract private investment. Faster depreciation, permitting reforms, government guarantees, co-investment, and enabling infrastructure could help lower investment hurdles.
The biggest near-term risk remains trade uncertainty, particularly regarding the USMCA agreement. Morgan Stanley notes that while the agreement may preserve Canada's formal market access, ongoing uncertainty could delay corporate spending.