9th May 2018

“Canadian economy grows by leaps and bounds in all provinces last year,” proclaims a headline from 2nd May in the Financial Post, summarizing the estimated 3.3% GDP growth the country experienced in 2017. “Canada’s economy in 2017 had one of its most broad-based expansions ever, with no region recording a deterioration and GDP rising in every province for the first time since 2011,” the article continues, adding that “it’s a return to normal for Canada.”

As for the future, Bloomberg assures us that “Canada’s Economy is on Track to Emerge from a Soft Patch,” according to a recent headline, referencing a period of slow growth in January. The article notes that the oil and automotive industries are improving their economic performances, as is the rail industry, construction, goods production and overall manufacturing. “Fifteen of 20 industrial sectors recorded higher activity in February,” the article states, although it does note that the real estate sector continues to underperform.

All in all, this seems to be a description of an economy that most of the world’s countries would love to have. Two recent analyses, however, paint a very different picture of where things are for Canada and where they might be going.

The Economic Policy Uncertainty Index takes three distinct variables – media coverage, economists’ forecasts, and the status of tax code provisions – and uses them to calculate the expected level of economic uncertainty that a country will experience in the coming months and years. Its calculations for Canada are somewhat sobering, with the country experiencing its second-highest level of uncertainty ever. The highest was in the immediate aftermath of Donald Trump winning the US presidential election.

So why is the current level of uncertainty higher than during the recession that began a decade ago? One economist from the Bank of Montreal identifies the major issues as rising budget deficits, climate change protection policies, new mortgage and credit rules, as well as delays and cancellations in oil pipeline construction. Business-friendly tax changes in the US have also been cited as a reason why Canadian businesses are hesitant to commit to invest. Concerns about the US-China relationship, as well as the future of NAFTA, are also factors in the current climate.

The Chartered Professional Accountants of Canada (CPA Canada) also released its recent findings on the Canadian economy, noting that economic optimism fell from 48% in Q4 2017 to 34% in Q1 2018. 67% of respondents said that in terms of business, Canada became less competitive than a year ago in relation to the US. Concern about US tax reforms, as well as Canada’s failure to commit to a balanced budget, fueled the decrease in optimism. This is all aside from the $2 trillion in household debt across the country, a number that continues to swell amid other economic activity.

Although these numbers represent an unwelcome trend for Canada, they occur in a context of general economic wellbeing across the country. With so many variables still in play and subject to change, time will tell whether the current growth period will continue on track or be partially derailed by shortcomings over the following months.