Morneau bullish on growth despite weak trade numbers

TORONTO Finance Minister Bill Morneau expects Canada’s “positive economic situation” to continue for the coming quarters even as the country’s latest export figures exhibit signs of weakness.

The minister met with private sector economists in Toronto on Thursday morning ahead of his fall economic update, which Morneau said would be released in the coming weeks. He said the “consensus” among the 10 economists in the room was the “economic situation we find ourselves in is better than we might have expected just not that long ago.

“My sense is we will continue to have a positive economic situation in the coming quarters, and obviously the longer term.”

His comments came as August statistics show the country’s trade deficit widened to $3.4 billion — almost a billion dollars more than expected — compared to a $3.0 billion deficit in July. Overall exports declined for the third consecutive month, down 1.0 per cent to hit $43.6 billion.

The economy has been unexpectedly strong for the first half of this year — with second-quarter growth at 4.5 per cent — prompting the Bank of Canada to raise its key interest rate twice this summer.

But the latest round of trade data “adds to the evidence that the outsized outperformance of the economy over the last year is coming to an end,” said Nathan Janzen, a senior economist with the Royal Bank of Canada, in a note to clients on Thursday.

Craig Alexander, an economist with the Conference Board of Canada who was among those who met with Minister Morneau, says the pace of growth the country has enjoyed is not sustainable. It will moderate going forward as the slack in the economy is used up, he said.

Alexander also pointed to some downside risks such as the ongoing renegotiation of the North American Free Trade Agreement, and geopolitical risks including Brexit.

Still, the conference board’s economic growth forecasts have been revised upwards to 3.1 per cent for this year, two per cent in 2018 and 1.7 per cent by 2019, he said.

“The base case forecast is for a healthy Canadian economy over the next couple of years,” Alexander said.

“But recognizing that the pace of growth is going to slow ... it is slowing to a healthy pace of growth.”