Finance Minister Bill Morneau expects Canada’s “positive economic situation” to continue for the coming quarters even as the country’s latest export figures exhibit signs of weakness.
The minister met with private sector economists in Toronto on Thursday morning ahead of his fall economic update, which Morneau said would be released in the coming weeks.
He said the “consensus” among the 10 economists in the room was the “economic situation we find ourselves in is better than we might have expected just not that long ago.”
“My sense is we will continue to have a positive economic situation in the coming quarters, and obviously the longer term,” Morneau said.
His comments came as August statistics show the country’s trade deficit widened to $3.4 billion — almost a billion dollars more than expected — compared to a $3-billion deficit in July. Overall exports declined for the third consecutive month, down 1.0% to hit $43.6 billion.
The Canadian economy has been unexpectedly strong for the first half of this year — with second quarter growth at 4.5% — prompting the Bank of Canada to raise its key interest rate twice this summer.
But the latest round of trade data “adds to the evidence that the outsized outperformance of the economy over the last year is coming to an end,” said Nathan Janzen, a senior economist with the Royal Bank of Canada, in a note to clients on Thursday.
“It also, however, does not alter our expectation that growth will still remain at an ‘above-potential’ pace and — with the economy probably already quite close to capacity limits — that further gradual Bank of Canada interest rate hikes will be warranted,” Janzen wrote.
CIBC Economics, however, expects the central bank’s “monitoring” of the economy to translate into a pause in interest rate hikes.
“Exports have looked very soft, and are a reason why we are forecasting a more muted growth picture in the second half of the year,” it said in a note Thursday. “That should keep Governor Poloz using a more gentle hand on interest rate hikes going forward.”
Exporters should get some assistance from the pullback in the loonie since September.
Morneau said Thursday the weaker dollar would be “helpful” for exporters.
“There is positive opportunity for (exporters), and the broader economic trends would lead me to conclude that we have a positive future.”
On Thursday, Bank of Nova Scotia released its latest economic forecasts, pointing to 3.1% gross domesitic product (GDP) growth for 2017 and 2.0% in 2018 — both unchanged from September but revised upwards since July. Scotiabank also put out its first GDP growth forecast for 2019, pegged at 1.5%.
Craig Alexander, an economist with the Conference Board of Canada who was among those who met with Minister Morneau, says the pace of growth the country has enjoyed is not sustainable. It will moderate going forward as the slack in the economy is used up, he said.
Alexander also pointed to some downside risks such as the ongoing renegotiation of the North American Free Trade Agreement, and geopolitical risks including Brexit.
Still, the conference board’s economic growth forecasts have been revised upwards to 3.1% for this year, 2% in 2018 and 1.7% by 2019, he said.
“The base case forecast is for a healthy Canadian economy over the next couple of years,” Alexander said. “But recognizing that the pace of growth is going to slow … it is slowing to a healthy pace of growth.”