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Obama win earns modest optimism from Canadian economists

Cyclists ride on a beach passing by a sand sculpture congratulating U.S. president Barack Obama for a second term in office in Puri, India, Wednesday, Nov. 7, 2012.


Canadian economists expressed modest optimism after the victory of President Barack Obama Tuesday, although their hopes for a positive impact on the North American economy is muted.

"An Obama victory is less damaging to the U.S. economy than a Romney victory might have been," said Derek Holt of Scotia Capital Markets.

The Obama win removes the risk that Mr. Romney "might have started a trade war with China, a bond sell-off on a more hawkish Fed, a ratings downgrade on numbers that don't add up or tax cuts he doesn't deliver, potential heightened conflict in the middle east, $200 (U.S.) oil, and perhaps even worse political gridlock," Mr. Holt said in a report.

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Robert Kavcic of BMO Capital Market said a victory by Mr. Romney would also have cast some doubts about the continued employment of Federal Reserve chairman Ben Bernanke, but the results "leave the monetary easing door still wide open."

Mr. Kavcic noted that since 1950 the market has performed much better under Democrat presidents than Republican ones, although some of that has been just lucky timing. However, the year after a presidential election has generally been the worst for equities in the four year cycle, he added.

The re-election of President Obama removes one uncertainty that has been weighing on the markets, said Capital Economics economists Paul Ashworth and Paul Dales. "The markets have one less thing to worry about," they said, even thought the lingering uncertainty over the fiscal cliff has not gone away.

CIBC economists noted that Mr. Obama will face the same "fractured landscape" in Congress that got in the way of legislative progress in the past few years, creating uncertainty, especially with the fiscal cliff looming.

In addition to those worries, the United States is set to hit is $16.4-trillion debt limit by the end of the year, the CIBC economists note, and extraordinary measures can only delay the "day of reckoning" by a few months. There is also the question of longer-term fiscal sustainability, but the divided Congress will make it tough to come to any kind of a deal.

Over all, "growth will track slightly higher than what a Romney presidency would have seen, given Obama's presence for reducing the deficit via tax increases rather than cuts to government spending," CIBC says.

"Democratic presidents haven't been all that bad for stocks," they say, and fixed income could gain ground as attention is focused on the fiscal cliff.

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Paul Taylor, chief investment officer for fundamental equities at BMO Asset Management, said there will be clear impacts from the election on Canada, because our economy is so dependent on overall economic growth across North America.

On a conference call Wednesday, he predicted  that there will be a "period of unease as we now turn from the politicking to the heavy lifting," particularly on the fiscal cliff issue.

The U.S. recovery is "quite tenuous," Mr. Taylor said, but if  "the cocktail of spending cuts and tax increases" is handled property, then the recovery will be extended and Canada will benefit. "If there are policy mis-steps, then that could be very challenging for the Canadian economic recovery, which is similarly tenuous."

A victory for Mr. Romney would likely have been good for energy stocks, because of his explicit support for a North American energy policy, he said. That now won't happen, so there won't be any fire lit under oil patch stocks.

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About the Author
Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More


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