Canada’s economy has been a bright spot in the dimming global economy — but perhaps not for much longer, according to several bold calls at Bloomberg’s Canadian Fixed Income Conference Wednesday.
David Rosenberg, chief economist at Gluskin Sheff & Associates Inc., was the most bearish, putting odds of a recession in Canada at 80 per cent as slowing global growth swamps any fiscal stimulus ahead. He sees the Bank of Canada cutting interest rates four times as a result.
“The way I look at the Canadian economy right now, it’s really quite bifurcated,” said Rosenberg. “I call it the Triple C economy: there’s crude, condos and cannabis.”
Canada has remained fairly resilient in the face of global weakness with rising immigration feeding labour market and wage gains, along with a rebounding housing market. But there are mounting concerns that it can’t remain an indefinite holdout as the U.S.-China trade war and a slowdown among trading partners take their toll.
Rod Balkwill, executive director of Saskatchewan’s Treasury Management Branch, said he sees a 60 per cent to 70 per cent risk of a recession, noting the housing market’s strength is “pretty narrowly based.” Charles Allain, an executive director in Nova Scotia’s finance department, said he’s raised the odds substantially.
“This time last year, I would’ve said a very small potential of 10 per cent to 15 per cent,” said Allain. “But I’ve got to think it’s closer to 50 per cent now.”
The consensus is that slower growth is on the horizon: economists expecting Canadian gross domestic product to decelerate to 1.5 per cent from 1.9 per cent last year. That’s compared with 2.3 per cent forecast in 2019 for the U.S. from 2.9 per cent in the prior year.
But predictions of recession were outliers at the conference. The probability of a recession was 25 per cent at the most recent Bloomberg survey of economists, compared with 35 per cent in the U.S.
“The drivers of the economy continue to be our old friends of housing in particular coming back, but in terms of investment and trade we don’t have a huge amount of optimism surrounding those sectors,” said Beata Caranci, chief economist at Toronto-Dominion Bank, who sees a 30 per cent to 40 per cent chance.
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National Bank of Canada Chief Economist Stefane Marion concurred, saying the fundamentals that underpin the Canadian economy are still quite strong and inflation continues to hug the Bank of Canada’s inflation target of 2 per cent.
If a recession does come, it “could actually be a lot more severe than people think,” according to David Wolf, part of the asset allocation team at Fidelity Investments Canada.
“The reason for that is it’s most likely to come from abroad,” Wolf said, adding that it could result in Canada’s first credit-cycle retrenchment since the early 1990s.
Wolf said he’s underweight the Canadian dollar and expects to see a “pretty significant depreciation in the currency” over the medium to long term.
“Canada actually stands out for us as being one of the more vulnerable economies despite what looks like a pretty good environment right now,” Wolf said.