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business week ahead

With apologies to playwrights Jerome Lawrence and Robert E. Lee, Bay Street, businesses, rich folks and rating agencies are anxiously waiting to see which of Ontario’s political leaders will inherit the Wynne.

By her own admission, Liberal Leader Kathleen Wynne is headed for a loss in Thursday’s election to New Democratic Party rival Andrea Horwath or Conservative challenger Doug Ford, who would inherit a big provincial economy at something of a crossroads.

Even if she’s wrong and the Liberals were to prevail, she would inherit her own hefty pre-election promises.

Ontario Premier and Liberal Leader Kathleen Wynne speaks to the media after visiting Crosscut Distillery in Sudbury on May 23, 2018.Fred Lum/The Globe and Mail

This comes as Ontario’s fortunes slide, though hardly into a mess, with credit-rating agencies already warning the province is on thin ice.

“If the polls are to be believed, it’s come down to a dead-heat battle between the two main opposition parties,” Bank of Montreal chief economist Douglas Porter said. “Typically occupying the opposite ends of the political spectrum, the two favourites promise very different economic visions.”

(Many Bay Street economists tend not to opine during election campaigns, and Mr. Porter noted his “strict neutrality” and just-the-facts-ma’am approach.)

“The NDP looks to ramp up spending above and beyond current Liberal pledges, with the extra paid for by a 1.5-percentage-point hike in the corporate income tax rate and a one- to two-percentage-point personal rate hike on (relatively) high-income earners,” Mr. Porter said.

“In complete contrast, the Progressive Conservatives look to trim corporate rates by one percentage point and to slice middle-income tax rates,” Mr. Porter added.

“Suffice it to say, it’s a big election for Canada’s biggest province, although from a credit standpoint we could end up in a similar deficit position regardless of which stripe wins.”

If she could still somehow emerge a winner, Ms. Wynne, of course, would inherit her own hefty pre-election promises, which have already raised the eyebrows of rating agencies.

Ontario Progressive Conservative Leader Doug Ford and NDP Leader Andrea Horwath shake hands at the end of the third and final televised debate of the provincial election campaign in Toronto on May 27, 2018.Frank Gunn/The Canadian Press

Here’s a look at where Ontario stands:

Ontario’s economy has enjoyed a strong run, but that’s poised to downshift. Growth in gross domestic product was 2.8 per cent in 2017, but the Conference Board of Canada, in its latest outlook, projected about 2 per cent or slightly more for the next several years.

“Rising interest rates and new policies for homebuyers have weakened the housing sector and slowed the pace of employment, income, and consumption growth,” the group said in a report put together by director Marie-Christine Bernard.

“Gains in employment will also be negatively affected by the higher minimum wage that currently sits at $14 per hour, set to increase to $15 in 2019. Real consumer spending is forecast to grow by 2.7 per cent this year after a 3.6-per-cent gain in 2017.”

Ontario, too, has a lot at stake as trade with the United States escalates from uncertainty to war, given its large manufacturing base.

Canadian, U.S. and Mexican negotiators have been struggling to remake the North American free-trade agreement without success. And just last week, the Trump administration hit Canada with tariffs on imported steel and aluminum, which will be felt most in Ontario and Quebec.

“Despite higher growth in the U.S. economy and the competitive value of the loonie, export growth will remain weak over the near term, although it will pick up to 2.4 per cent in 2019 after a minuscule gain of 0.1 per cent in 2018,” Ms. Bernard’s report said of Ontario.

“Competition from China and weaker growth in vehicle sales in the U.S. are two of the main factors behind the less-than-stellar outlook for Ontario exports. Car sales have levelled off in the U.S. recently due to higher interest rates and fewer dealer incentives.”

And, of course, all bets are off if NAFTA collapses or Ontario’s key auto industry takes a hit.

On the fiscal front, Ontario finally projected a 2017-18 surplus after a long run of deficits. Then came the run-up to the election.

After the previous Liberal budget, Moody’s Investors Services changed its outlook on Ontario’s ratings to “negative” from “stable,” warning about spending and debt.

We’ll see what the agency has to say about the fiscal program of whoever takes Thursday’s election.

As for jobs, the Conference Board projects unemployment down to 5.8 per cent this year, and back up to 6 per cent next year. The latest Statistics Canada measure put it at 5.8 per cent in April.

(By the way, Inherit the Wynne is a spin on Inherit the Wind, a 1950s play based on the so-called Scopes Monkey Trial over Darwinism, and also became a famous movie starring Spencer Tracy, with later film versions, as well.)

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It’s a busy few days on several fronts, actually. Here’s what else to watch for:


Apple Inc. holds its global developers conference in San Jose.

Otherwise, it’s a slow start to a hectic week, with a report economists expect to show a 0.5-per-cent dip in U.S. factory orders in April.


Markets will be watching for the latest Jobs Openings and Labour Turnover Survey from the U.S. Bureau of Labour Statistics and quarterly results from Hudson’s Bay Co.

Observers also expect Statscan to report a decline in labour productivity of 0.1 per cent for the first quarter.

The Reserve Bank of Australia is expected to hold its benchmark lending rate steady at 1.5 per cent. And, said Kate Hickie of Capital Economics, “rates are likely to stay on hold for at least the next year.”


A key day, this, given the trade war.

On the home front, economists project Statscan’s April trade report will show a slimmer deficit.

“Canada’s trade deficit is expected to narrow significantly to $2.5-billion in April from the prior month’s record $4.1-billion shortfall,” said Benjamin Reitzes, BMO’s Canadian rates and macro strategist, noting the impact of stronger oil prices as the second quarter kicked off.

“Broadly higher commodity prices and an anticipated increase in manufacturing activity are expected to boost exports, as well,” he added. “We’re looking for some retracement in imports to help narrow the deficit. And, we’ll see if noncommodity export volumes can string together a third consecutive gain after moving sideways for nearly a decade.”

Where the enemy in this battle is concerned, the Trump administration could get more ammunition if, as economists forecast, the government report shows the trade gap rising to US$50-billion in April from US$49-billion in March.

Overseas, most observers expect India’s central bank to hold interest rates steady.

“But the hawkish tone of the previous meeting’s policy minutes, and the deterioration in the inflation picture since then, suggest to us that policy is likely to be tightened,” Shilan Shah of Capital Economics said.


With housing markets and household debt in the spotlight, the Bank of Canada’s semi-annual look at the financial system will be interesting, to say the least, particularly given that the latest numbers show consumers – finally – easing up on the pace of borrowing.

Bank of Canada Governor Stephen Poloz.Ben Nelms/Reuters

Bank of Canada Governor Stephen Poloz, who held his benchmark overnight rate steady last week but signalled an increase as early as July, will follow that up with a news conference.

“Governor Poloz’s press conference will focus on the release of the Financial System Review; however, he could be quizzed on monetary policy in the Q&A, particularly regarding how steel and aluminum tariffs impact his recent more bullish tone,” said Andrew Grantham of CIBC World Markets.


The Group of Seven summit in Charlevoix, Que., should be a raucous affair given that U.S. President Donald Trump has ticked off just about everybody he can.

“The upcoming G7 meeting is likely to be one of those ‘fly on the wall’ meetings that could see a lot of plain speaking take place in the wake of President Trump’s decision to implement the promised tariffs on steel and aluminum,” CMC Markets chief analyst Michael Hewson said.

“Is Trump’s assertiveness part of a wider strategy to show he is even handed with both friend and foe, before walking things back [this] week, or are we really looking at a full-blown trade war?” he added.

“While there has been plenty of talk about retaliation, politicians will need to tread carefully to avoid an escalation, if Trump doubles down and targets the German car industry as part of his section 232 investigation into car imports into the U.S.”

China will help set the stage before the summit starts with its latest trade report, which comes amid a trade tussle between Washington and Beijing.

CMC’s Mr. Hewson believes both exports and imports perked up in April.

“This suggests that after a slow start and maybe some disruption as a result of Chinese New Year that economic activity is normalizing,” he said.

“There is still some concern that economic activity might be affected by the uncertainty over U.S.-China trade talks, however China’s export activity should give a decent indication as to whether global demand is picking up again.”

At home, it’s oft a pointless exercise to try to predict what Statscan’s monthly jobs report will show, given the volatility, but economists always make a valiant effort, nonetheless.

They expect the May report to show net job gains of between 8,000 and 25,000, with unemployment steady at 5.8 per cent.

“Hiring over the second quarter should bring 2018 job creation back into positive territory,” CIBC’s Royce Mendes said.