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

UPDATE: Fire crews suppress smouldering fire on Highway 19 north of Campbell River

Wildfire reached .25 hectares, according to BC Wildfire Service

Intertidal walk looks at life on the reef in Campbell River

Biologist Sandra Milligan has been leading walks for 13 years

Residents welcomed to new Habitat for Humanity homes in Campbell River

New homeowners received keys during ceremony at affordable housing development

North Island College School of Business celebrates 150 grads

Most recent graduates honoured at mixed at the end of May

Police make arrest after report of a man brandishing a gun at Campbell River-area lake

43-year-old man from the Comox area has since been charged with multiple offences

VIDEO: Firefighters stop blaze from spreading after BMW crashes at Saratoga Speedway

Victoria-based businessmen were ‘corner training’ on Father’s Day when incident took place

B.C. ‘struggling’ to meet needs of vulnerable youth in contracted care: auditor

Auditor general says youth in contracted residential services may not be getting support they need

Pair of B.C. cities crack Ashley Madison’s “Infidelity Hotlist”

Data from the website reveals Abbotsford and Kelowna hottest spots for cheaters

Life’s work of talented B.C. sculptor leads to leukemia

Former Salmon Arm resident warns of dangers of chemical contact

Billboard posted along B.C.’s Highway of Tears to remember missing and murdered Indigenous women

Billboards featuring Indigenous artwork to be placed in Surrey, Kamloops and near Prince George

Federal cabinet ministers visit Edmonton, Calgary, in wake of TMX approval

Natural Resources Minister Amarjeet Sohi is set to visit Trans Mountain Corp.’s terminal in Edmonton

B.C. municipality prepares to forbid overnight camping by homeless despite court ruling

While courts have ruled against blanket bans, Langley City is employing a site-by-site approach

B.C. auditor says Indigenous grad rate highest ever but education gaps exist

The percentage of Indigenous students graduating from B.C. public high schools has hit its highest level ever

Statistics Canada reports annual pace of inflation rises in May to 2.4%

Transportation prices gained 3.1 per cent as the cost of air transportation added 8.9 per cent

Most Read