NAFTA TALKS WILL DOMINATE, BUT DON’T EXPECT MUCH PROGRESS
Gordon Isfeld looks at this week’s trade negotiations and the recession question.
The North American Free Trade Agreement is bound to draw a lot of attention when negotiators for the United States and Mexico set up camp this week with their Canadian counterparts in Montreal for another round of talks on the future of the continental trading bloc.
The sixth session of meetings on NAFTA, the first to be held outside one of the three capital cities, is set to begin Tuesday and run until Sunday. But a congressional standoff over an appropriations bill to fund the government, which Democrats say they won’t vote for unless Congress can come to agreement on immigration, could cause delays.
“A potential government shutdown in the U.S. — if it comes to that — may divert attention away from NAFTA, and even possibly delay any developments on that front,” said Douglas Porter, chief economist at BMO Capital Markets. U.S. President Donald Trump indicated late last week that “talks were going well, and that perhaps nothing could be done until well after the Mexican elections, potentially pushing any action much further down the road,” Porter said.
IN ECONOMIC NEWS
On Thursday, retail sales for November are forecasted to edge up 0.4 per cent, with gasolines sales likely driving the modest increase and higher auto sales also adding to the bottom line. Consumer prices for December will come Friday, and are expected to show a decline of 0.4 per cent, which would push the year-over-year inflation level down to 1.8 per cent — slightly below the Bank of Canada’s ideal target of two per cent.
In case you missed it, the latest reading on the country’s manufacturing sector provides a better glimpse into the long-suffering, recession-battered sector. Guess what? It’s not doing all that badly.
In fact, Statistics Canada reported Friday that factory sales were up 3.4 per cent in November, setting a record sales level of $55.5 billion, mostly the result of companies pushing more transportation equipment out of the gates. Friday’s report shows petroleum, chemicals and coal products were also in big demand. By volume, sales were up 2.5 per cent in November.
“On the whole, it’s been a good year for manufacturing production,” said Mike Holden, director of policy and economics at Canadian Manufacturers & Exporters.
Last year saw plant capacity grow by 85 per cent, which was a 17-year high, and “that suggests there’s not a lot of room to grow with the existing operations,” Holden said. “Additional growth would have to come from either price increases or building new plants and (other) facilities.”
He added: “It’s an open question as to whether or not that’s going to happen (this year) or how much it’s going to happen.”
CLOCK’S TICKING, OR IS IT?
We might be getting ahead of ourselves here, but isn’t it about time for another recession? If you buy the well-worn, once-every-decade-or-so theory of economic cycles, we’re almost there.
In 2009, Canada’s key interest rate was at 1.25 per cent, as the nation struggled to shake off the global economic collapse’s impact. Last week, the Bank of Canada tightened its trendsetting lending level to 1.25 per cent. Should we read anything into that? History shows parallels.
Globally, the most recent economic collapse was in 2008-09, spearheaded by the financial meltdown that had its start in the United States and quickly spread through developed and developing nations, alike. Between then and now, Canada also took the brunt of the global oil-price collapse and wildfire devastation in the Alberta oilpatch.
Does this all add up to another recession? “There’s one school of thought out there that expansions die of old age. But I think, in fact, very few of them ever have,” central bank governor Stephen Poloz told reporters last week. “They die because something else comes along to disturb things. And one of them is inflation pressures, for example ... So, central banks see inflation pressures and then put on the brakes — and that causes a slowdown, or perhaps a recession. But most of the others (reasons) are just some miscellaneous thing that happens that throws the world, or the domestic economy, off course.”
Add trade barriers to that list.