How long can it go? Resilient economy enters 2019 with signs of weakness

How long can it go? Resilient economy enters 2019 with signs of weakness

Through much of 2018, Canada’s unemployment rate hovered near a 40-year low

The Canadian economy entered 2018 on an unexpectedly impressive run. The country begins 2019 on a healthy note but signs of weakness have raised a key question: how long until the good times come to an end?

Through much of 2018, Canada’s unemployment rate hovered near a 40-year low and job-creation remained strong as the evidence pointed to an economy going at close to full tilt.

The handoff was a good one, too — the country had posted three-per-cent growth for all of 2017, largely thanks to strong household spending. We’ll have to wait a little for the final numbers but forecasters say 2018 has likely delivered still-sturdy growth of about two per cent.

But as 2019 approaches, there are worries the solid economic expansion is starting to show its age.

Last month, the federal government’s fall economic statement projected two-per-cent growth again for 2019, but many predict the number will likely come in lower following a recent drop in oil prices.

In addition to the pullback in crude prices, experts point to jitters in the financial markets, predictions the American economy — a key contributor to Canadian growth — will start to cool off and the United Kingdom’s difficult divorce from the European Union, which could ripple across the global economy.

READ MORE: Fix low incomes among family-class immigrants to help Canada’s economy: study

There’s also potential for an even bigger threat: an escalation of the trade war between Washington and Beijing.

On trade, Canada made it through a year filled with significant uncertainty, including the difficult negotiation and signing of an update to the North American Free Trade Agreement.

Many of the trade unknowns, however, will carry over into the new year. The road to NAFTA 2.0’s ratification could bring more drama, punishing American steel and aluminum tariffs remain in place and the clash of superpowers between Canada’s two biggest trading partners continues to play out.

“There are always reflections around the cyclical downturns that happen and, as I’ve said, the impacts of a trade war between China and the United States could have significant impacts on the global economy — negative impacts on the global economy,” Prime Minister Justin Trudeau said in a recent interview with The Canadian Press.

“We have to make sure that we are prepared for rough waters if we encounter them.

In Canada, potential trouble spots include the combination of high household debt, rising interest rates and slowing wage growth that’s been “terrible” for about half a year following a good pickup early in 2018, says Matt Stewart, director of economics for The Conference Board of Canada.

Higher interest rates, Stewart added, have delivered a hit to household spending, which has been the primary driver of Canada’s good economic fortunes.

“It’s been a long time since we’ve had a recession,” Stewart said. “As of yet, I think most of the news is still positive, but there is a growing amount of risks.”

With overburdened consumers expected to take a breather, business investment is seen as the next critical source of growth. But Stewart said the transition has yet to materialize because investment has underperformed, likely due to competitiveness concerns. Businesses aren’t sure whether Canada’s the best place to put their money.

In an effort to boost investment, Ottawa announced billions of dollars worth of corporate tax incentives in its fall statement. Taxpayers will have to wait and see if the federal changes will be enough to encourage more companies to invest in Canada.

Craig Alexander, chief economist of Deloitte, said the economy will continue to have healthy growth in 2019, but notes it’s due for some moderation.

“We are in the late stages of a business cycle,” he said. “That doesn’t mean that a recession is around the corner, but we need to recognize that we’re 10 years into an economic recovery, expansion. Business cycles are typically eight to 10 years long.”

Alexander added markets are probably overreacting to the possibility that another downturn could be almost upon us. He thinks the more likely case is that growth will continue to slow.

The economy’s evolution will have different impacts depending where one lives, he added.

For example, the energy sector faces big challenges.

Part of it comes from the recent plunge in oil prices, but there’s also been an extra discount on the price of western Canadian crude caused by transportation bottlenecks out of the Alberta oilpatch.

“This is sad news for Alberta,” Alexander said. “They’ve only barely recovered from the last recession.”

Ottawa offered assistance this month in the form of a $1.6-billion aid package to support oil and gas companies.

Alberta, however, wants federal help to move its oil to new markets.

Ontario’s industrial sector will also face a big hurdle in 2019. General Motors has announced plans to shutter its plant in Oshawa later in the year, which will put 2,500 people out of work and inflict economic pain on the region.

Bank of Montreal chief economist Doug Porter said Canada already took a small step back in 2018 — and he expects growth to slow further.

“Just looking at financial markets there’s obviously a lot of concern that we are getting to a late stage of the (economic) cycle,” Porter said. “We don’t believe that recession risks are especially high at this point, but we do think the North American economy will cool in 2019.”

Andy Blatchford, The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

Kimberley Search and Rescue were able to quickly respond to a call for service and transport an injured mountain biker to East Kootenay Regional Hospital over the weekend. Kimberley SAR file photo.
Kimberley Search and Rescue respond to injured mountain biker on Bootleg Mountain

Kimberley Search and Rescue responded to a call for service this past… Continue reading

FILE – Perry Bellegarde, National Chief of the Assembly of First Nations, takes part in an event on Parliament Hill in Ottawa on Tuesday, July 7, 2020. THE CANADIAN PRESS/Sean Kilpatrick
Indigenous Peoples Day must be a ‘call to action’, says Assembly of First Nations chief

Discovery of children at Kamloops residential school site must lead to change, Perry Bellegarde says

x
City of Kimberley approves RCMP contract strength at eight members

At their regular meeting on Monday, June 14, 2021, Kimberley City Council… Continue reading

A tent housing a mobile vaccination clinic. (Interior Health/Contributed)
Over 5K jabbed at Interior Health mobile COVID-19 vaccine clinics

The clinics have made stops in more than 40 communities since launching last week

Kimberley residents were treated to the first Farmers' Market of the season, and the feeling of a return to normalcy. Paul Rodgers photos.
WATCH: Kimberley’s first Farmers’ Market of the season

Kimberley residents enjoyed the first Farmers’ Market of the year on Thursday,… Continue reading

Marco Mendicino, Minister of Immigration, Refugees and Citizenship during a press conference in Ottawa on Thursday, May 13, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Canada to welcome 45,000 refugees this year, says immigration minister

Canada plans to increase persons admitted from 23,500 to 45,000 and expedite permanent residency applications

Investigators use a bucket to help recover human remains at a home burned in the Camp fire, Thursday, Nov. 15, 2018, in Magalia, Calif. Many of the missing in the deadly Northern California wildfire are elderly residents in Magalia, a forested town of about 11,000 north of the destroyed town of Paradise. (AP Photo/John Locher)
‘Forever War’ with fire has California battling forests instead

Five of the state’s largest-ever blazes seared California last year, as authorities tackle prevention

Tokyo 2020 President Seiko Hashimoto and IOC President Thomas Bach, on a screen, speak during a five=party online meeting at Harumi Island Triton Square Tower Y in Tokyo Monday, June 21, 2021. The Tokyo Olympics will allow some local fans to attend when the games open in just over a month, Tokyo organizing committee officials and the IOC said on Monday. (Rodrigo Reyes Marin/Pool Photo via AP)
Tokyo Olympics to allow Japanese fans only, with strict limits

Organizers set a limit of 50% capacity — up to a maximum of 10,000 fans

The border crossing into the United States is seen during the COVID-19 pandemic in Lacolle, Que. on February 12, 2021. THE CANADIAN PRESS/Paul Chiasson
Border quarantine to soon lift for fully vaccinated Canadians

Eligible travellers must still take multiple COVID-19 tests

Pictured are Tyler McNaughton and Sacha Bentall. The husband and wife duo owns and operates Cutter Ranch in Fort Steele. (Zoe Ferguson Photo)
Farm Life: Where food comes from

A chat with Cutter Ranch

Join Black Press Media and Do Some Good
Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

A portion of the George Road wildfire burns near Lytton, B.C. in this Friday, June 18, 2021 handout photo. THE CANADIAN PRESS/HO, BC Wildfire Service *MANDATORY CREDIT*
Blaze near Lytton spread across steep terrain, says BC Wildfire Service

Fire began Wednesday and is suspected to be human-caused, but remains under investigation

Blair Lebsack, owner of RGE RD restaurant, poses for a portrait in the dining room, in Edmonton, Friday, June 18, 2021. Canadian restaurants are having to find ways to deal with the rising cost of food. THE CANADIAN PRESS/Jason Franson
Canadian restaurateurs grapple with rising food costs, menu prices expected to rise

Restaurants are a low margin industry, so there’s not a lot of room to work in additional costs

Most Read