Transcript: Slower growth - Good for Canada?

Length: 2:29

Avery Shenfeld,

Chief Economist, CIBC World Markets


The good news is both Canada and the U.S. are running near full employment. The bad news is that of course that starts to necessitate a slowing in growth because we can only grow so quickly given growth in the working age population, and we're seeing the Bank of Canada, the Federal Reserve, raising interest rates, and they don't advertise it as such, that's really an effort to slow economic growth so we don't have a problem with inflation. Right now the core inflation measures that the central banks track are running around 2 percent. So gasoline has pushed inflation up but even underlying trends are around too. And that's their longer term target. So to hold it where it is we are going to see slower growth in both the U.S. and Canadian economies.



Yes, job opportunities, new openings will be slowing down but the unemployment rate today is sitting near 6 percent. That's a multi-decade low. So it's a sign that the starting place is good and the objective is really to hold the unemployment rate around that level as opposed to drive for something a lot lower which would tend to bring that inflation risk on more materially.


Drivers of growth in U.S. & Canada

A lot of the growth we're seeing in the U.S. side of the border is coming from tax cuts and government spending increases and we know that we're going to have to pay the piper on that. We've driven the U.S. deficit up. Next year it will be over a trillion dollars. By 2020 we're going to run out of the momentum from that one wave of tax cuts and spending hikes. We may well have Congress voting to pare back some government spending growth to deal with the deficit. Here in Canada the vulnerability isn't so much from government it's from the private sector, particularly what Canadians themselves are doing. We've been borrowing and buying houses and cars. We're starting to see some of the impact of higher mortgage rates, tighter mortgage rules on Canadians' appetite to borrow. That's going to slow things like consumer spending a bit. It's going to slow housing as a driver of growth, as again we're already starting to see. How much of that can we replace with things like exports if the U.S. is trying to slow its own growth by tightening fiscal policy? So it's going to be a challenge. 

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