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Food and beverage economic update: Vaccine rollout creates optimism

Reference: FCC

The FCC Quarterly Economic and Financial Market update reviews the global and Canadian economic environment so businesses can make well-informed decisions. Overall, the rollout of the COVID-19 vaccines and the lessening restrictions create optimism for the Canadian and global economies.

GDP
Canada’s GDP is expected to grow 6.2% in 2021, supported in part by commodity exports.

High GDP growth expectations are good news for food and beverage manufacturers - with more money in people’s bank accounts, consumer spending should increase in Q3 and Q4.

Supporting GDP in the latter part of the year will be a rebound in household consumption and service industries. Year-over-year, Q3 GDP growth is being pegged at 6.5%.

New businesses may flood the market thanks to opportunities related to consumer product shortages, and that includes food manufacturing.

Canadian dollar
The value of the Canadian dollar is projected to average 81.3 U.S. cents in 2021, which could impact exports, as Canadian products are not as competitive on the global scale with a higher dollar.

The stronger dollar, however, is beneficial to manufacturers importing inputs from the U.S.
Inflation
Challenging the food and beverage sector is rising inflation and the likelihood of resulting interest rate hikes, increasing the cost of borrowing.

CPI inflation in Canada should average 2.3% in 2021, peaking above 3% into summer before lowering in the fall.

Although the Bank of Canada overnight rate is likely to remain unchanged at 25 basis points in 2021, expect them to climb in 2022. Long-term interest rates could rise in response to inflationary pressures... Read More