27 December 2018

Moreover, there are other challenges to financial markets, forecasts of economic cooling in the U.S. (the main contributor to Canadian growth) and issues with the United Kingdom and the European Union.

Another dangerous threat is a growing trade war between Washington and Beijing.

In terms of trade, it was a difficult year for Canada with numerous uncertainties, e.g. hard negotiation over the North American Free Trade Agreement. And all of them will continue next year. The path to NAFTA 2.0’s ratification may lead to more issues, concerning American steel and aluminum tariffs and the conflict between Canada’s two largest trading partners.

The main potential risks for Canada are the following: high household debt, rising interest rates and slower wage growth, which was quite disappointing for almost half a year, said Matt Stewart from the Conference Board of Canada.

Growing rates, according to Stewart, have affected household spending negatively, and it was the main driver of Canada’s good economic results.

“We haven’t had a recession for a long time already”, – he noted. “Now the situation is quite positive, but there are several risks”.

Craig Alexander, chief economist of Deloitte, expects the economy to show healthy growth next year, although with a moderation.

“It’s the late stage of a business cycle,” – he said. “It doesn’t mean we’ll have a recession soon, but we have to admit that Canada’s economy has been recovering and expanding for 10 years. Business cycles tend to last for 8-10 years”.

In Alexander’s opinion, markets are overreacting to the possibility of another downturn. He says a slowing growth is more likely.

Bank of Montreal chief economist Doug Porter believes that Canada has already taken a small step back this year, and the growth will keep slowing down.

“There are many worries at the financial markets over a late stage of the economic cycle,” – Porter said. “We don’t expect recession at this point, but we do predict a cool down for the North American economy in 2019.”

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