Vanguard's Economic and Market Overview

Canada -4% Economic growth Our 2022 GDP growth forecast is lower than our 5% view at the start of the year. Still, we expect a resilient economy. Canada, as a net energy exporter, gets a GDP boost from higher oil and gas prices, even as they undermine consumers' purchasing power. Population growth supports a real estate sector under pressure from rising interest rates. -6.5% Headline inflation Economic and labor market strength will likely keep headline inflation elevated through 2022, with energy, food, and shelter prices remaining high. Anticipated Bank of Canada rate hikes should help temper core inflation to about 4.5% to 5% by year-end before further normalization toward a 2% target in 2023 and 2024. ~3% Monetary policy The Bank of Canada's Governing Council says it is "prepared to act more forcefully" to prevent high prices from becoming entrenched and to bring inflation back to the bank's 2% target. That is likely to mean front-loading increases to the overnight rate so that it is near or above the neutral rate, around 3%, by the end of 2022.* ~5.5% Unemployment rate Near record lows at midyear 2022, the unemployment rate may rise in the second half of the year as financial conditions tighten domestically and globally. Currently elevated job vacancies and accelerating wage growth suggest a labor market in position to remain healthy even as the Bank of Canada moves to rein in inflation. Notes: Figures related to economic growth, inflation, monetary policy, and unemployment rate are Vanguard forecasts for the end of 2022. Growth and inflation are comparisons with year-end 2021; monetary policy and unemployment rate are absolute levels. *The neutral rate is the theoretical interest rate at which monetary policy neither stimulates nor restricts an economy. For institutional use only. Not for distribution to retail investors. Price-to-income ratio WHAT TO WATCH The vulnerable housing sector Higher interest rates threaten a housing sector that's vastly more expensive than in other developed markets. Even with population trends that support demand, a moderation in prices could be at hand. 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 1990 1995 2000 2005 2010 2015 2020 Canada United States 25-country average Notes: The price-to-income ratio is the ratio of real housing prices to real disposable incomes. Sources: Vanguard calculations, based on data from the Federal Reserve Bank of Dallas, Refinitiv Datastream, and Moody's Data Buffet, as of December 31, 2021. V. 23 |

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