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“Uncertainty.”

That was the word that dominated the Canadian and global economic landscapes in 2019. Uncertainty about a U.S.-China trade war. Uncertainty about Brexit. Uncertainty about pipelines.

Indeed, the pervasive trepidation roiled global financial markets, and eventually led to a wave of interest-rate cuts by central banks (the Bank of Canada excepted). The cuts had a calming effect on the chaos; now, we enter 2020 with the fog lifting on those key uncertainties.

A new year begins with some causes for optimism, yet still sources of doubt – some old and lingering, others just emerging. We asked five Canadian economists to tell us one factor giving them cause for cheer entering 2020, and another to fear. Here’s what they said.

BEATA CARANCI, chief economist, Toronto-Dominion Bank

Fear: Waning hiring, waxing insolvencies. “Keep your eyes on Canadian insolvency data and private-sector job creation. The last six months have not been kind. A contraction in private-sector jobs has been masked by positive off-setting outcomes occurring in public-sector hiring. We hope this just reflects normalization of the [employment] data after outstripping economic growth earlier in the year, as opposed to something more insidious. Meanwhile, consumer insolvencies have been on a steady uptrend in 2019, defying expectations within a low-interest-rate environment. There is clear regionality, with elevated rates within the Prairies. However, even Ontario is moving higher, and at a faster clip than the national rate. This bears watching for a regional economy that carries significant economic mass and heavily leveraged households.”

Cheer: The American consumer. “Many are looking to recent positive news on trade deals between the U.S. and China, as well as the USMCA inching closer to the finish line. But the U.S. consumer is where the action is at. This group is relatively unencumbered with debt and has recently breathed life back into the home-ownership market. This dynamic has the potential to create a welcomed growth impulse to the U.S., buffering the weight coming from cautious business sentiment alongside a weaker global economy. Why should Canadians care? The healthier the U.S. backdrop, the more balanced the risks for Canada, and the greater the prospect for exports (and maybe even investment growth) to finally take pressure off Canadian consumers to keep the economic engine revving.”

TODD HIRSCH, chief economist, ATB Financial

Cheer: Pipeline progress. “I’m most optimistic about the progress on the Trans Mountain Pipeline project. This is a national economic issue, not an Alberta issue – and this is an important distinction. With $129-billion in exports last year, versus $75-billion in motor vehicle parts, hydrocarbons are by far Canada’s largest export. Fortunately, progress on the pipeline project has been encouraging lately. More certainty around future export capacity should lift sentiment among energy producers, which are looking for some good news to tell their investors. Despite the conflicted relationship the rest of the world has with crude oil, transitioning to less intense carbon solutions will still take time. The world needs energy – all forms of it – and Canada remains the most environmentally responsible provider.”

Fear: Jittery geopolitics. “I do worry about global events that could trigger a financial ‘situation.’ Because Canada is exposed to commodities and considered a riskier investment play, we tend to get sideswiped in global financial events. Looking around the world in 2020, there are a lot of potential trigger points. All eyes will be on U.K. Prime Minister [Boris] Johnson as he attempts to do something in one single month that has proven impossible for nearly four years: finish the Brexit deal. If he fails, investors will become even more anxious about the U.K. and European economies. Layer on top of that the U.S. impeachment hearings, a presidential election, continued violence in Hong Kong, instability in Turkey and Iran – there are a lot of potential triggers.”

DAWN DESJARDINS, deputy chief economist, Royal Bank of Canada

Cheer: Recession fears fading. “Canada is likely to avoid recession in 2020. While the yield curve inversion in the middle of 2019 raised alarm bells, most other indicators remain far away from levels that usually signal the economy is in or heading into a recession. The strong labour market, rising wages and low unemployment rate – even with that increase in unemployment in November – are keeping the risk of recession at the low end of the spectrum. And although the slowing in the manufacturing sector bears watching, the sector remains in much better shape than heading into previous downturns. Canada’s modestly inverted yield curve is the only indicator we are monitoring that hints of a slowing in the economy ahead. And on that score, history shows that unlike in the U.S., yield curve inversion has had a spotty track record in predicting Canadian recessions.”

Fear: Trade turmoil isn’t over. “In 2019, trade tensions weighed on global exports and imports, with activity slipping into the weakest patch since the Great Recession. And while financial markets and economy-watchers hope the agreement between the U.S. and China, the so-called ‘Phase One’ trade deal, plus final signing of the U.S./Mexico/Canada pact by the three countries’ governments will alleviate some of the uncertainty, risks of a burbling up of trade tensions in 2020 remain high. For Canada, the decline in global trade combined with a softening in the U.S. industrial sector was a bad combination for demand for non-commodity exports. Further, against the uncertain backdrop, Canadian businesses shied away from investing to increase their capacity. Should trade tensions heat up again in 2020, any improvement in exports or business investment could be nipped in the bud.”

JOCK FINLAYSON, executive VP and chief policy officer, Business Council of British Columbia

Cheer: Brighter days for oil and gas. “After a few tough years, there looks to be some good news coming for Canada’s beleaguered energy sector. The U.S. section of Enbridge’s Line 3 pipeline expansion is expected to advance. LNG Canada is moving ahead on its huge B.C. project. The [Trans Mountain expansion] project continues to make progress. And the country’s biggest oil and gas producers have been managing their costs down amid a difficult economic and policy environment. All in all, there are some positive signs for Canada’s No. 1 export industry.”

Fear: Choking on red tape. “Canada has acquired a reputation for having complex, costly and inefficient regulatory regimes affecting business, particularly in the natural resource, manufacturing and transportation sectors. We rank near the bottom among advanced economies in the World Economic Forum’s latest assessment of the burden of government regulation on business. Little is being done to address this problem at the national level, although some provinces – minus, unfortunately, my home province – are alive to the issue. I fear that the economic toll stemming from the mounting regulatory burden will become increasingly evident in 2020.”

ALICIA MACDONALD, associate director, economic forecasting, Conference Board of Canada

Fear: Manufacturing and resources struggle. “It has been a prolonged recovery for Canada’s manufacturing and resource sectors since commodity prices crashed at the end of 2014. Next year’s outlook is little better – the manufacturing industry is dealing with the closure of the GM Oshawa plant and the impact on aerospace suppliers in Winnipeg from the recent halt to Boeing’s production of the Max 8. Further west, the forestry sector is struggling in British Columbia while oil patch production in Alberta is being held back by pipeline capacity constraints. Add in a broad-based downward trend in investment over the past five years, and the sector has limited ability to turn around its fortunes in 2020.”

Cheer: Service sector shines. “Even as our goods production is flailing, Canada’s steady progression to a knowledge-based economy continues – a welcome boon for skilled workers. Despite accounting for less than 10 per cent of all employment, the professional and technical service industry has created more jobs in 2019 than any other industry. And it’s the service sector where firms are choosing to invest in Canada. We have seen particularly strong growth in high value-added sectors like finance and insurance and information technology. The strength in service investment will continue to prop up growth in 2020 – here’s hoping that goods sector will rebound and help our economy get running on all cylinders.”

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