A year ago, The Analyst asked economists at Canada’s six leading chartered banks—RBC, CIBC, Scotiabank, BMO, TD, and National Bank—for their forecasts of key economic variables in 2016: real GDP, the consumer price index (CPI), interest rates, and the Canadian dollar. How accurate were their predictions, and what are they forecasting for 2017?

In a nutshell, the more cautious 2016 forecasts tended to be vindicated.

While there are still a few weeks before 2016 ends, here’s where the economists stand.

1. All six economists were optimistic in their economic growth forecasts in 2016. (The median was 2.1 percent, while current estimates suggest the actual rate will be around 1.2 percent.)
2.  Their interest rate forecasts, particularly for medium- and long-term rates, were too high by a substantial margin. The median forecast for the two-year Government of Canada (GoC) rate was 1.12 percent, while the median expected 2016 year-end rate is now 0.59 percent. For the 10-year GoC rate forecast, the median prediction was 2.30 percent; currently, the median forecast is 1.16 percent.
3. The economists’ year-end median forecast of the Canadian-U.S. dollar exchange rate (US$0.76) appears—in the wake of much volatility that saw the Canadian dollar fall below US$0.69 in early 2016—to be fairly accurate (so far).

The least optimistic and, therefore, most accurate forecasters of economic activity in 2016 were National Bank and Scotiabank, with real GDP growth predictions of 1.6 percent and 1.7 percent, respectively. CIBC, RBC, TD, and BMO had forecasts of stronger growth, ranging from 2.0 percent to 2.3 percent.

The Bank of Canada’s overnight target rate was unchanged in the past year, in line with the expectations of BMO, TD, National Bank, and Scotiabank. However, it was below the 25 bps and 75 bps increases forecast by CIBC and RBC, respectively.

Although interest rate forecasts were generally too high, TD predicted the smallest increase (to 0.90 percent) in the two-year GoC interest rate; BMO called for the smallest increase (to 1.90 percent) in the 10-year rate.

2017 forecasts cluster around +1.8 percent real GDP growth, an unchanged to +25 bps Bank of Canada rate and +40 bps approximately in short- and long-term rates.

As for 2017 (see table on page 15), the economists’ forecasts for real GDP growth have a median of 1.8 percent, versus 1.2 percent in 2016, with very little variation among them. (Only BMO and Scotiabank are more optimistic at +2.1 percent and +2.0 percent, respectively.)

The median of the unemployment rate forecasts for year-end 2017 is 6.9 percent, down 0.1 percent from year-end 2016, with National Bank at the high end of the range (7.3 percent) and RBC at the low end (6.8 percent). For headline CPI, the median forecast is 2.1 percent, up from 1.7 percent in 2016.

The median forecast for the Canadian dollar at year-end 2017 is US$0.77, up slightly from US$0.75 in 2016. Scotiabank tops the range at US$0.80; CIBC is at the low end with US$0.73.

The forecasters are evenly divided between those calling for a 25 bps increase in the Bank of Canada overnight target rate to 0.75 percent (BMO, National Bank, and Scotiabank) and those expecting no change in 2017 (CIBC, RBC, and TD).

The two-year GoC rate is widely expected to be substantially higher, rising to a median of 0.98 percent versus 0.59 percent at year-end 2016. Scotiabank, BMO, and National Bank hover around 1.05 percent for year-end 2017, with RBC and TD at the low end at 0.80 percent and 0.65 percent, respectively.

Finally, the median of economists’ forecasts for the GoC 10-year yield at year-end 2017 is 1.59 percent, up from an estimated 1.16 percent at yearend 2016, with RBC making the highest prediction (1.90 percent) and BMO the lowest (1.38 percent).

In summary, the forecasts for 2017 tend to cluster around +1.8 percent real GDP growth, an unchanged to +25 bps Bank of Canada rate and +40 bps approximately for short- and long-term interest rates.

The main drivers of Canadian economic growth for 2017 are expected to be the low Canadian dollar, U.S. economic growth (the economists are predicting a range from 2.0 percent to 2.3 percent for U.S. real GDP growth), improving trade, and moderate growth in household spending. Anemic capital spending, even outside the energy sector, is expected to be a drag.

Important assumptions for 2017 include no major political, financial, or commodity market shocks, continuing stimulative monetary policy in the eurozone with no euro exits or defaults, no major disruptions in global oil supply beyond those now in evidence, no U.S. government shutdowns over budget impasses with Congress, and no new major federal spending cuts or tax hikes in Canada or the U.S.

Scotiabank’s economists put it wisely last year when they said “…financial market volatility attests to the chronic economic strains and the elevated geopolitical risks internationally. And businesses, investors, policy-makers, as well as economists alike are all having a difficult time trying to understand and navigate through the unprecedented challenges….”

This year has been one of many surprises, including Brexit, the rise of Donald Trump, the mounting failures of free trade and globalization, the war in Syria, the uncontrolled migrant crisis in the Middle East and Europe, and an attempted coup in Turkey. Such surprises tend to support the adage that the most significant events in any year are usually the ones not on forecasters’ radar screens prior to the beginning of the year. There’s very little reason to believe 2017 will be any different.