February 2019

Canada continues its search for positive economic news as multiple trends across various economic sectors remain pointed in the wrong direction. The country’s economic foundation means that potential for growth continues to exist, although in the short term such a reversal seems elusive.

Joy Thomas, CEO of Chartered Professional Accountants Canada, summarized the thinking of many. “Despite the recent spate of strong economic data,” she said, “the sharp deterioration in economic sentiment highlights that Canada’s business leaders are rightly worried about the numerous external risks facing the economy.”

Pessimism among Canadian accountants rose from 28 percent to 35 percent in the last quarter of 2018, while just 26 percent reported a general sense of optimism – the lowest number since 2016. The three pillars of the problem now are the trade situation with the US, oil prices, and the ambiguities that revolve around the national economy.

David Doyle, North American economist and Canadian market strategist at Macquarie Group, reviewed the current difficulties. “Canada’s economy, we think, is at this critical juncture, and it’s confronting several headwinds – that includes challenged demographics, low productivity, structural imbalances like the housing situation and our trade deficit,” he said in an interview.

According to Doyle, Canada is at an important crossroad in terms of business, with further challenges to consider in terms of productivity, trade and housing. All of these problems are having an effect on the country’s GDP.

Real GDP in Canada dropped by 0.1 percent in November, after increasing slightly the month before. The wholesale trade sector dropped by 1.1 percent overall, while wholesale in machinery, equipment and supplies fell 2.1 percent. The manufacturing sector also decreased by 0.5 percent.

Many observers, including Doyle, believe that manufacturing is unlikely to see a resurgence – and will remain stuck like this for quite some time. Given the contracted investment in the energy sector, he added, a lower oil price would be massive for Canadian businesses.

“The area that we think is the engine of growth of Canada is the energy sector,” Doyle said about this main pillar of the Canadian economy. “Even in this period of subdued growth in the energy sector, it’s still a major contributor to Canada’s economy and a major contributor to the well-being of households across the country,” Doyle said.  According to the National Bank of Canada, consumers’ spending rate for retail products will decrease to the minimum level in the past 10 years because of the slowdown Canada is currently facing.

Real consumption growth is expected to drop to 1.3%, according to Canadian economists. 1.3 percent will be the lowest since the post-financial crisis rate of 0.2% in 2009. The comparatively slow economy makes people in Canada feel less wealthy and want to reduce costs.

Krishen Rangasamy, senior economist at National Bank, also spoke about the reduced spending rate. “Part of the loss of momentum can be attributed to a softening housing market, which is not only restraining resales and home prices, but also hurting consumption spending via fading housing wealth effects,” he said.

Faced with this bleak short-term outlook, many Canadian businesses seem resigned to wait out the winter storms, in anticipation of sunnier spring weather in the months to come.

CONNECT WITH ACCOUNTANCY INSURANCE

PROFESSIONAL ASSOCIATIONS





 

 

 

CLIENT SUPPORT

AUDIT SHIELD LOGIN