No Need to Hit the Economic Panic Button

Will the Canadian and global economies move forward next year or tread water? What will supplant the hit the Canadian economy will take from manufacturing and oil? Where will the Canadian and U.S. currencies go? Should homeowners lock in their mortgage rates?

These were just a few of the many questions addressed by Pierre Cléroux, Vice President of Research and Chief Economist with Business Development Bank of Canada (BDC), and Ted Mallet, Vice President and Chief Economist with the Canadian Federation of Independent Business (CFIB), at Goldman Communications’ inaugural economic outlook luncheon, hosted last week at Artscape Daniels Launchpad in concert with the Canada-Israel Chamber of Commerce.

Goldman Communications CEO Corey Goldman moderated the engaging discussion, which began with many top-of-mind issues that have been grabbing headlines for some time: interest rates, oil, when the next recession will hit, and Canada’s relationship with its southern neighbor, and what impact it will have on the Canadian economy.

Also, part of the dialogue was the transition underway within the Canadian economy: from manufacturing and resources to technology, innovation and service-oriented growth, both in Ontario and in the West.

Of note, neither Messrs. Cléroux nor Mallett expect we will see a recession in 2019, though both agreed that interest rates will continue to rise modestly over the two years as the Bank of Canada attempts to bring benchmark rates back to a more-neutral level.

“When you have a slowdown, you need to have some room to decrease rates, so if the interest rate is 1.75% like it is today, it is very hard to stimulate the economy by reducing it,” says Mr. Cléroux.

The two chief economists also agreed that the U.S. economy needs to be monitored closely in the coming two years, particularly as it continues to operate at near full speed in the face of trade wars, rising interest rates, bubbling inflation and political uncertainty.

While smooth-sailing for now, Messrs. Cléroux and Mallett warned that current U.S. economic performance is being driven in large part by tax reforms, which are set to be phased out in 2020. They also noted that additional interest rate increases are likely in the cards, which will also serve to slow the economy south of the border.

Combined with the next U.S. election, 2020 will be a year to keep a close watch on the U.S. economy, and by extension our own, they said.

Overall, the theme of the day was that while much of the economic world may be on edge, there is no need to hit the panic button. As Mr. Mallett points out, just because the markets are in the tenth year of a record-setting bull run doesn’t mean it has to stop completely any time soon.