Episode summary
Canada’s Next Growth Phase
Thoughts on the Market (Morgan Stanley)
· · 5 min · Guests: Arunima Sinha
Summary
Canada’s recent trade uncertainty and weak productivity have obscured a more constructive medium-term setup, according to Arunima Sinha. She argues that the country may be moving from an export-led model toward a more domestic, investment-led growth phase built on capital deepening and greater technological diffusion.
Sinha says Morgan Stanley expects Canada’s potential growth to rise from about 1.5% to closer to 1.75% over the next 3 to 4 years, with the possibility of reaching close to 2% in the 2030s. She notes that there are already large capital pipelines in place, but much of the announced spending is concentrated in utilities, oil and gas, and transportation, while less is flowing into machinery and equipment. That leaves room for private investment to spread into other sectors, especially finance and information services.
She also points to a favorable demographic window: despite slowing near-term population growth, Canada’s working-age population is still projected to rise through 2045 while many developed-market peers shrink. The key test, she says, is whether investment expands beyond a few large projects and lifts productivity in machinery-intensive sectors such as construction, manufacturing, agriculture, and wholesale.
Key takeaways
- Arunima Sinha says Canada may be shifting from export-led growth to capital deepening and broader technological diffusion.
- Morgan Stanley estimates Canadian potential growth could rise from about 1.5% to close to 1.75% over the next 3 to 4 years.
- Sinha says about half of announced capital pipelines are concentrated in utilities, oil and gas, and transportation, even though those sectors are a relatively small share of the economy.
- She argues the bigger upside depends on private investment spreading into finance and information services, where productivity gains have historically been stronger.
- Sinha says Canada’s working-age population could rise by about 3% by 2035, 5% by 2040, and 6% by 2045, unlike many peers.
- The main test, she says, is whether productivity improves in construction, manufacturing, agriculture, and wholesale, allowing Canada to enter the 2030s with close to 2% potential output growth.
Notable quotes
“we think that the near-term uncertainty around trade is actually clouding the opportunity for global investors”
“the growth model in Canada over the next 3 to four years can actually pivot from the export-led growth story”
“potential growth in Canada could feasibly rise from about 1 and a.5% to closer to 1 and 3/4%”
“Canada's potential growth could actually pivot from being about 1 and a.5% today to entering the 2030s with close to 2% in potential output growth”
How the episode opens
Welcome to Thoughts on the Market. I'm Arunima Sa from Morgan Stanley's global and US economics teams. Today, why Canada's economy may be closer to a new growth phase.
It's Monday, October 5th at 10:00 a.m. in New York. Canada has been in the news recently.
There have been lots of headlines related to trade, around population growth, around weak productivity, years of underinvestment, and those are real constraints and they have weighed on the near-term outlook. At Morgan Stanley, we are more constructive on the medium-term outlook for Canada. And we recently wrote a report around this along with our strategists titled Canada, the next acceleration.
And from our perspective, we think that the near-term uncertainty around trade is actually clouding the opportunity for global investors. There are three points that we make in the report. We estimate that the growth model in Canada over the next 3 to four years can actually pivot from the export-led growth story that we've seen over the past few years into one that emphasizes capital deepening and greater technological diffusion across the economy.
So, it really is about the domestic buildout and the opportunity in shifting away from trade and export-led growth into a more productive economy that's not just larger over time, but can actually grow at a much faster pace as well. And so by our estimates, we think that potential growth in Canada could feasibly rise from about 1 and a.5% to closer to 1 and 3/4%. The way that we see it, this really doesn't require things to start from scratch.
There are already large capital pipelines that are in place. But one of the things that we do note is that a lot of these pipelines are actually concentrated in a few sectors. So about half of these are in utilities and oil and gas, transportation.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- canada growth
- trade uncertainty
- productivity
- investment-led cycle
- global economics
Watch the episode
Watch “Canada’s Next Growth Phase” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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