A brief surge in post-election economic optimism has given way to increased anxiety among Canadians – a sentiment some economists believe could have a chilling effect on the economy.
A Nanos Research poll commissioned by The Globe and Mail found 44 per cent of respondents expected the Canadian economy to be weaker this year compared with 2015, while only 19 per cent thought it would be stronger. Another 27 per cent said they expected things to remain about the same.
“For the first quarter, we’ll probably see soft economic confidence and continued anxiety about the future strength of the Canadian economy,” pollster Nik Nanos said. That “can definitely have a chilling effect in the short term,” he said, adding that stubbornly low oil prices and a weak Canadian dollar “make [Canadians] nervous” and could lead some to delay making big-ticket purchases.
Respondents were similarly concerned about their personal finances: Twice as many respondents (36 per cent) expected to be worse off this year, compared with 2015, as those who expected to be better off (18 per cent).The poll of 1,000 Canadian adults, conducted online between Dec. 18 and 21, is considered to be accurate within 3.1 percentage points, 19 times out of 20.
“It’s pretty clear when we look at economic sentiment there’s a big black cloud looming over Canadians when they’re thinking about the economy,” Mr. Nanos said. A separate weekly Nanos poll shows Canadian consumer confidence has dropped steadily since mid-November, while the firm’s “expectations index” that gauges the economic outlook by Canadians has fallen to 50 from 57.6 in six weeks.
Economists are predicting a meagre year for consumer spending, as weak conditions in resource-heavy regions, notably Alberta, offset gains in British Columbia and Ontario. The Bank of Montreal is forecasting a 2-per-cent increase in consumer spending in 2016, which would be “one of the weakest performances outside of recessions in the past 40 years,” chief economist Douglas Porter said.
“A weak dollar is good news for producers generally but clear-cut bad news for Canadian consumers. … On balance, it looks to be a mediocre year at best for consumer spending in 2016, with massive regional divergences.” In addition to the weak dollar and oil prices, a rise in Canadian unemployment to 7.1 per cent from 6.6 per cent a year ago has “skewered consumer confidence,” he said.
Royal Bank of Canada economist Paul Ferley agreed that “fairly pervasive” negative consumer confidence “is something that could keep economic activity fairly modest.” But he cautioned that confidence is typically more tied to the state of labour markets, which “have been holding up better than expected” – with the economy adding 10,000 to 15,000 jobs a month. If job creation continues through 2016, “I think that will have the dominant impact and give consumers confidence.”
Mr. Ferley added that lower oil prices have both cut household costs and helped to stimulate the U.S. economy, which should improve markets for Canadian goods, while Canadian auto and housing sales have held up.
Economists are calling for modest Canadian economic growth after meagre gains in 2015, so long as oil prices hold. Mr. Porter recently cut his economic forecast for 2015 to 1.2-per-cent growth and trimmed his 2016 forecast to 1.6-per-cent growth.
Mr. Nanos said the federal Liberals’ upcoming budget should act as “a key trigger point,” where the government can redefine a “prosperity narrative” and restore some confidence among voters.
Prime Minister Justin Trudeau pledged during last year’s election to run deficits of up to $10-billion a year to finance major investments in infrastructure, clean energy and affordable housing. That appears to resonate with Canadians: 52 per cent of respondents to the Nanos survey said they supported deficits if the economy is weak and 14 per cent said they backed deficits regardless of how the economy is doing – while 27 per cent opposed the plan.
But respondents were less enthusiastic about deficits larger than those pledged by the Liberals, with 48 per cent opposed or somewhat opposed. “If the deficit rises beyond $10-billion, that could potentially be the first major disappointment among Canadians,” Mr. Nanos said. The Liberals “have to remember they’ve won the election, they have a honeymoon, but they don’t have a blank cheque.”Report Typo/Error
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