Skip to main content
// //

Briefing highlights

  • Next government faces slower growth
  • Hong Kong exchange proposes LSE bid
  • Stocks, loonie, oil at a glance
  • OPEC trims global demand forecast
  • Roots posts deeper loss
  • Trump urges lower rates again
  • Required Reading

‘Scrapes and bruises’

Don’t be fooled by the strength of the latest numbers: The next Canadian government will face economic “scrapes and bruises” and “fizzling growth.”

Second-quarter economic growth at an annual pace of 3.7 per cent, reported only recently, was certainly a show-stopper.

But that was driven by one factor, exports.

Story continues below advertisement

And three recent forecasts indicate far slower growth from there on in.

Canada should escape a recession, as long as the U.S. does, too, CIBC World Markets said in its latest outlook, but it projected “fizzling growth” ahead.

“We still believe the economy isn’t yet faced with challenges that warrant dramatic action,” said CIBC senior economist Royce Mendes, adding that the bank isn’t calling for a recession in the U.S.

“If past is prologue, Canada can avoid a recession so long as the U.S. does, too,” Mr. Mendes said.

Indeed, Canada hasn’t slumped into a recession alone since 1953, he added.

“So, while the risks to the downside have clearly increased, the economy will get through a few scrapes and bruises ahead.”

Source: CIBC

Prime Minister Justin Trudeau will launch a 40-day election campaign when he visits Governor-General Julie Payette this morning. That means the 3.7-per-cent growth figure and strong jobs numbers will be the last major readings in the minds of voters.

Story continues below advertisement

Then we’ll get another look in early October at how the economy is faring when Statistics Canada reports on gross domestic product for July, kicking off the third quarter.

Some observers also expect the Bank of Canada to cut its benchmark interest rate, but that won’t happen until the end of October at the earliest, after the Oct. 21 election.

Here’s where it gets more interesting.

CIBC projects economic growth will slow in the third quarter to an annual pace of 2.1 per cent, and further in the final three months of the year to 0.9 per cent.

It forecasts growth of just 1.6 per cent for the entire year, and 1.4 per cent in 2020.

Bank of Montreal, in turn, forecasts growth at an annual pace of 1.4 per cent in each of the third and fourth quarters. BMO pegs growth at 1.5 per cent for this year, and 1.7 per cent for next.

Story continues below advertisement

Bank of Nova Scotia predicts growth of 1.5 per cent in the third quarter, and 1.6 per cent in the fourth, with this year coming in at 1.6 per cent and 2020 at 1.9 per cent.

“Given the weak domestic demand profile, it’s hard to argue that the Canadian economy is particularly strong,” said Benjamin Reitzes, BMO’s Canadian rates and macro strategist.

“And, the medium-term outlook isn’t any more favourable, with consumers facing record high debt burdens and accounting for 56 per cent of GDP,” he added in a recent outlook.

“It’s going to be tough for the economy to perform if job growth falters at all. Debt burdens mean there are limits to how much of an impact even lower interest rates will have. Rate cuts will still have some effect for now, but less than in prior cycles.”

The jobs market, of course, can be crucial to an election outcome, and Canada’s has been super strong.

BMO projects unemployment of 5.7 per cent in each of this year and next, while CIBC sees the jobless rate at 5.8 and 6.2 per cent, respectively. Scotiabank, in turn, forecasts 5.7 and 5.9 per cent.

Story continues below advertisement

With consumers laid low, the focus shifts to business investment and government fiscal policy.

But there isn’t “much near-term upside” for the former, given the U.S.-China trade war and the current price of oil, Mr. Reitzes said.

Source: BMO

“With respect to government, Ottawa has been running a deficit even as the economy performed reasonably well, potentially leaving less room to provide support,” he added.

“The provincial landscape is a bit more muddied, with Alberta and Ontario looking to narrow deficits while Quebec and B.C. are able to spend a bit more.”

Citigroup, meanwhile, is telling clients it doesn’t expect the Canadian election to be a market-moving development.

“Our base case fiscal scenario currently is one in which government spending evolves in line with what is projected in the government’s latest budget plan for [fiscal year] 2019,” said Veronica Clark, associate, U.S. economics, at Citigroup.

Story continues below advertisement

“This would entail a gradual reduction in fiscal year budget deficits and federal debt as a percentage of GDP … as well as largely stable but modest contribution to GDP growth from government spending,” she said in her report.

She added Citi would hold that view until the fall economic statement should the governing Liberals win again.

“In line with trends in Conservative provincial governments, we expect that fiscal projections under a Conservative federal government would imply smaller budget deficits and less boost from government spending,” Ms. Clark said.

Of course, that view of not moving markets is based on what’s happening now, and it could obviously change.

“The election outcome could become more consequential, however, as there is potential for weakening global growth to provoke a slowdown in Canada,” Ms. Clark said.

“A more significant slowdown, if it occurs, would most likely only come after elections in October, suggesting there could be less hesitancy by the elected government to add fiscal stimulus for fear of political pushback.”

Story continues below advertisement

Read more

Hong Kong exchange eyes LSE

Hong Kong’s stock exchange is eyeing a takeover of the London Stock Exchange in a cash-and-stock offer worth about US$36.5-billion.

Hong Kong Exchanges and Clearing Ltd. said it has made a proposal to the board of London Stock Exchange Group PLC, which recently unveiled its own merger with Refinitiv, a data firm.

The Hong Kong group made its bid conditional on the LSE killing the Refinitiv deal.

A deal, the Hong Kong exchange said, would “create a world-leading market infrastructure group with a global footprint, diversified across asset class, ideally positioned to benefit from the evolving global macroeconomic landscape, connecting the established financial markets in the West with the emerging financial markets in the East, particularly in China.”

It would also “reinforce Hong Kong’s position as the key connection between Mainland China, Asia and the rest of the world, providing a trusted and clear path for the continued opening up of Mainland China’s capital markets and for the investment of Asia’s growing wealth.”

The LSE acknowledged the approach, saying it “remains committed to and continues to make good progress on its proposed acquisition of Refinitiv Holdings.”

Markets at a glance

Read more


OPEC cuts forecast

From Reuters: OPEC cut its forecast for growth in world oil demand in 2020 due to an economic slowdown, an outlook the producer group said highlighted the need for ongoing efforts to prevent a new glut of crude. In a monthly report, it said oil demand worldwide would expand by 1.08 million barrels a day, 60,000 less than previously estimated, and indicated the market would be in surplus.

Roots posts deeper loss

From The Canadian Press: Roots Corp. reported a loss of nearly $9.7-million in its latest quarter as the company fell short of expectations. The loss amounted to 23 cents a share for the 13-week period ended Aug. 3 compared with a loss of nearly $4.1-million or 10 cents a share a year earlier.

Trump urges lower rates

From Reuters: President Donald Trump said the Federal Reserve should lower U.S. interest rates to “zero or less” to help “refinance our debt” with lower interest costs and a longer term, and blamed the U.S. central bank’s chief for missing a “once in a lifetime opportunity.” “The USA should always be paying the ... lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing,” Trump wrote in a pair of early morning tweets.

GM recalls vehicles

From Reuters: General Motors Co. is recalling 3.46 million U.S. pickup trucks and SUVs to address a vacuum pump issue that could make braking more difficult and increase the risk of a crash.

Tepid response in Asia for iPhone

From Reuters: Apple Inc.’s new, lower priced iPhone that comes with a faster processor but lacks 5G technology disappointed Asia, where cheaper and feature-packed handsets from rivals are already available.

Required reading

Ottawa blocks RCMP on SNC-Lavalin inquiry

The RCMP has been looking into potential obstruction of justice in the handling of the prosecution of SNC-Lavalin Group Inc., but its examination has been stymied by the federal government’s refusal to lift cabinet confidentiality for all witnesses. Daniel Leblanc and Robert Fife report.

Apple unveils new streaming service

Apple Inc. unveiled a new video-streaming service that aims to go head-to-head with Netflix as the smartphone giant shifts its focus to subscription services in hopes of boosting flagging iPhone sales, Tamsin McMahon writes.

Whither the TSX

Canada’s main stock market index is approaching a record high. In a curious twist, that rally is being driven by simmering concerns about a weaker global economy. But can Canadian stocks power ahead if the economic outlook brightens? David Berman examines the issue.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies