Uncertainty may dampen Canada’s outlook
Canada’s economic cooling could turn into a deep freeze: observers
By the time the most recent economic readings are published, they could already be relegated to the history bin. That’s not only because of the usual lag in data gathering, it’s also a matter of number-crunching being overtaken by political events.
Case in point: The current negotiating process between Canada, the United States and Mexico to determine the future of continental trade. As the playing fields change, so too will the economic numbers for each nation. By what degree remains unknown.
Initial talks began last week in Washington aimed at drastically revamping the nearly quartercentury-old North American Free Trade Agreement. It is expected to run through December, with Mexico hosting the next round and Canada taking the lead sometime later. How that process will unfold is anyone’s guess.
But one thing is for certain, the revamped NAFTA will be born into a new economic world, if already weakening signs of growth and trends in history are any indication.
“Is it conceivable that the (Canadian) economy will start to slow down in 2018? I would think it could,” said Ian Lee, a business professor at Carleton University in Ottawa. “I’m not saying there’s going to be a recession in 2018. I’m just saying no one is discussing (the possibility) . ... It’s a possibility, in the background, that we could see a slowing in the fall or the winter coming up.”
In fact, there are already signs the economy is cooling. Last week, Statistics Canada reported the manufacturing sector went into reverse during June, with sales contracting by 1.8 per cent after three straight months of gains.
The declines were focused mainly on petroleum and coal products, along with a drop in purchases of transportation equipment and weaker activity in the chemical products sector, the agency said Thursday.
That’s a tough turn for manufacturers who have spent the better part of the post-2008-09 recession struggling with market losses and plant closures.
On Friday, Statistics Canada reported that consumer prices — the Bank of Canada’s key mandate concern — remained fairly tame in June, rising by 1.2 per cent on a year-over-year basis, up slightly from one per cent the previous month.
Given the modest increase in inflation, the central bank has little need at the moment to consider another hike in interest rates and will likely hold off until at least October, barring a major shock to the economy. Feeding into those numbers will be Statistics Canada’s retail sales report for June, to be released Tuesday. Forecasters are calling for an advance of 0.3-percent over the May reading.
But for the big indicator — gross domestic product for June and the second quarter as a whole — we’ll have to wait until next Thursday.
Economists have made no bones about the fact that the pace of GDP growth is slowing after a strong performance in the first half of 2017 and could ease back even farther during the remainder of the year.
It is all the more reason to acknowledge that this country, along with the United States, appears headed for a prolonged period of weaker activity.
Forecasters are generally in agreement on the GDP outlook. After 3.7 per cent growth in the first quarter of 2017, the secondquarter output was initially pegged at a hefty four per cent. That now seems overdone. Statistics Canada will publish the official growth number for the April-to-June period on Aug. 31.
“The big picture is that growth remained snappy in the (second) quarter. While our four-per-cent estimate may be a tad aggressive, the point is growth continues to rebound forcefully from the twoyear oil-induced funk,” said Douglas Porter, chief economist at BMO Capital Markets.
“The uncertainty surrounding the NAFTA talks may weigh on business capital spending, especially in the many sectors where the trading relationship faces some question,” Porter said.
Avery Shenfeld, chief economist at CIBC World Markets, acknowledged that he anticipates “a slowing coming in the second half, but that simply captures some unsustainable features of a very brisk, above-trend first half ...
“Should NAFTA talks turn ugly, it could jeopardize both exports and business capital spending in 2018, two sources of growth that we are counting on to replace some, but not all, of a downshift in housing.”
The uncertainty surrounding the NAFTA talks may weigh on business capital spending, especially in the many sectors where the trading relationship faces some question.