OTTAWA — The Canadian economy is closing out the year on a firmer footing than it began, but a global shift toward protectionism is expected to continue in the year to come and weigh on economic growth.
The trend for decades was toward policies that favoured open markets, increased globalization and less regulation — from the era of Margaret Thatcher and Ronald Regan up until the financial crisis of 2008, said Craig Alexander, chief economist at Deloitte Canada.
But he says the pendulum has now swung toward an environment that’s less supportive of open markets and free trade.
“I think that underlying theme will be with us for some time,” Alexander said.
The headlines of 2019 were dominated by trade-related issues including fears of Britain leaving the European Union without some sort of replacement agreement and the U.S.-China trade war.
As the year comes to a close, those risks have diminished.
A negotiated Brexit with some sort of transition period is looking more likely and the U.S. and China appear to be moving toward a trade deal after the December announcement of a Phase 1 agreement that will see both sides reduce tariffs.
And here at home, the new North American free-trade deal appears back on track after Canada, the United States and Mexico formally agreed to changes to the agreement they signed last year. Ratification of the deal had been stalled in the U.S. Congress.
But Alexander said the politics underlying these trade issues remain, and there is a risk of increased protectionism in Europe with the departure of Britain from the European Union.
“In the United States we’re going to have a presidential election in 2020 and if President Trump wins, well, we know he likes protectionism,” he said.
“But if he loses and the Democrats win, the Democrats are not a pro-trade party.”
He said the global political risks for the Canadian economy are going to remain elevated.
“As a middle power, mid-sized economy, we’re going to be buffeted by these political winds.”
Economic growth in Canada has been uneven this year.
The economy grew at an annual pace of 0.8 per cent over the first three months of the year before accelerating to a pace of 3.5 per cent in the second quarter.
Growth in the third quarter came in at an annual rate of 1.3 per cent.
Alicia Macdonald, associate director of economic forecasting at the Conference Board of Canada, expects growth to remain modest even as she noted some potential challenges.
The Conference Board is expecting growth of 1.8 per cent in 2020 and 1.9 per cent in 2021, helped by a strong labour market and modest growth in consumer spending.
“As we look into next year, we see economic growth kind of unfolding roughly at the same pace that it did this year,” she said.
Macdonald doesn’t think the Bank of Canada will need to cut rates next year to boost the economy, but says a breakdown in the trade talks between the U.S. and China could spell trouble.
Another potential hitch, Macdonald says, may be household debt and how Canadian families handle the burden.
“There is some downside risk on the household side,” said Macdonald, noting that the growth of non-mortgage consumer credit has slowed.
Despite expectations of modest growth for 2020, it hasn’t been all good news on the recent economic data front.
The jobs report for November fell well short of expectations with a loss of 71,200 jobs in the month and recent factory sales figures also disappointed.
The monthly jobs report by Statistics Canada is notoriously volatile, so economists caution not to put too much weight on one month’s results, but the disappointment for November followed a weak October showing.
Insolvencies are also on the rise.
According to the Superintendent of Bankruptcy Canada, the number of consumer insolvencies, which includes bankruptcies and consumer proposals, was up 13.4 per cent in October compared with the same month a year ago, due to a large jump in the number of consumer cases. For the 12-month period ended in October, the number of consumer insolvencies was up 8.9 per cent compared with the same period a year earlier.
Doug Hoyes, a licensed insolvency trustee, says the number of personal insolvencies are below the highs reached during the financial crisis, but they are trending up even as the economy has been growing and the unemployment rate has been near a record low.
“If you look at the slice of the population that is coming in to see me, it is a bigger slice than it was a year or two ago,” said Hoyes, co-founder of Hoyes, Michalos and Associates Inc.
“More people are getting into trouble.”
Hoyes said eight out of 10 of his clients are working, but end up filing for insolvency because their expenses are rising faster than their incomes.
“As a result they are using credit to survive and they don’t have the money to service their debt,” he said.
All of this is unfolding as the search for a new Bank of Canada governor gets underway with Stephen Poloz set to finish his term in June.
Carolyn Wilkins, the senior deputy governor, is considered by many as the frontrunner for the job. She would be the first woman to hold the top job at the Bank of Canada, but the second-in-command at the central bank hasn’t had much luck in recent rounds of being promoted to governor.
Gordon Thiessen was the last senior deputy governor to be promoted to governor of the Bank of Canada when he took over the job in 1994.