Last Thursday Statistics Canada released numbers on November’s GDP and revealed that for the second time in three months the Canadian economy had shrunk. It was down by 0.1% in September, then up 0.3% in October and in November declined 0.1%.
The main reason for the decline in November was low energy production. There were also declines in manufacturing, construction and finance. The question is whether Canada has now entered the predicted soft patch or is there something larger affecting the economy which will mean lower growth for longer.
The decline of 0.1% in November matched the median forecast by Bloomberg.
Avery Shenfeld of CIBC World Markets offered that these numbers would leave the Bank of Canada “decidedly on hold for the next couple of quarters” as far as interest rate hikes are concerned.
The Bank of Canada had predicted growth in Q4 of 2018 to come in at 1.3% and for Q1 of 2019; it would slow to 0.8%. The economy is expected to rebound after that as the job market picks up and business investment increases.
As noted, the question is are we in for a prolonged decline or will Q2 of 2019 show increased economic activity? Joe Chidley has an interesting piece in the Financial Post dealing with last week’s U.S. Fed decision to maintain interest rates where they are and what that may say about approaching economic volatility.
Chidley argues that by the Fed not hiking rates, that may mean the “recovery isn’t as robust as it previously let on.” The Fed back-stopping suggests that the economic cycle may be getting long in the tooth. He cited trade wars, a fractious Europe, issues with China and the uncertainty around Brexit as possible reasons.
All this to say that any slowdown in the U.S. economy is going to have a negative effect on Canada.
Looking forward to this fall’s federal election, while there are a number of other leading issues that will sway Canadians’ voting preferences, pocket book issues usually rank near the top. The question “are you better off now than you were four years ago” is a real one.
The federal government as noted last week has been pumping money into the economy in good times and there is a budget coming in which the prime minister indicates will be the promise of at least some form of partial pharmacare. The Liberals can rest assured that the NDP, with Jagmeet Singh as leader or not, will enter the fall election with numerous spending promises including pharmacare and money for housing.
The question for Trudeau, Scheer and Singh is, if the economy does not recover in Q2, how large a deficit are they willing to run and for what purpose. All three leaders should have vivid memories of 2008-2009 recession and the amount of money that was required to stimulate the economy. While few are predicting this outcome, the three leaders should be looking at Q2 of 2019 with some trepidation.