NO, IT’S A WASH

Some sectors will benefit, others will lose, but the economy all evens out in the end

There may be a new government at the helm in Canada, but it’s the same old economy and the fundamental backdrop won’t change course easily despite plans to drastically boost spending on infrastructure. The new money is expected to generate more business for engineering and construction firms, while the government’s anticipated opposition to oil pipelines could boost industrial stocks such as the railroads if there is more demand for crude-by-rail.

Part of the infrastructure spending will also likely be targeted at the environment — a worthwhile plan, but one that will likely only help a small segment of public companies, and potentially lead to hurdles for others such as those in the energy sector. “While there is nothing inherently inefficient or wasteful about ‘green’ initiatives, wishful thinking rather than astute cost/benefit analysis often drives such decisions,” Moody’s said in a recent report.

TD Bank estimates that additional infrastructure spending under the Liberals could boost growth by 0.1 and 0.3 percentage points in 2016 and 2017, respectively. However, economist Jonathan Bendiner noted that most of the growth benefit from that spending is not expected to materialize until the Canadian economy returns to full capacity sometime around mid-2017. Bank of Canada Governor Stephen Poloz weighed in soon after the election to say any impact on central bank policy from fiscal stimulus would depend on how concrete the government’s plans are and how long they would take to implement. Poloz knows, as investors should, that there is a big difference between campaign pledges and actually implementing them.

Jimmy Jean, a senior economist at Desjardins Capital Markets, noted that because the promised deficits will be modest, the impact will also be modest. He compared the plan to the $47.2 billion in stimulus spent during the financial crisis, when Canadian public-sector investment contributed just 1.3 percentage points to annualized real GDP growth in Q2 2009 and 1.1 points in Q3. Normal rates of contribution followed in 2010, and then it became a drag in 2011 during the unwinding phase. Expect the same again. — Jonathan Ratner