Banks see rosy economic outlook for Canada despite volatility

Attractive fundamentals point to a positive economic outlook for Canada in the fourth quarter despite market volatility, a report from HSBC says.

Concerns for Canada’s economy come from politics, trade tensions between the U.S. and China and instability in significant emerging markets such as Turkey, the report says. “However, strong fundamentals suggest that looking past short-term noise in the markets is the best course of action.”

The bank is forecasting that the risk of a recession in Canada and the U.S. is still low with the United States-Mexico-Canada (USMCA) trade deal providing more certainty for investors and businesses.

With the Bank of Canada’s core inflation measure remaining around 2%, HSBC expects two or three rate increases between now and the end of 2019.

When it comes to Canadian investments, HSBC favours equities over fixed income. The bank prefers corporate and provincial bonds for fixed income investments.

As for Canadian equities, the report notes “many investors are understandably disappointed by the disparity with higher U.S. returns.” HSBC forecasts “attractive earnings growth” for Canada in 2019, while U.S. earnings growth will be “tempered as the stimulus from tax cuts moderates.”

HSBC is positive about the energy sector and forecasts more oil supply pressures in the fourth quarter, “which bodes well for Canadian producers and the wider Canadian economy,” the report says.

Scotiabank’s latest quarterly global outlook is also positive about the Canadian economy following the USMCA agreement and plans for a liquid natural gas plant in Kitimat, B.C., which is expected to boost economic growth in 2020.

The bank is forecasting Canada’s GDP will rise from 2.1% in 2018 to 2.2% in 2019. It will then slow down to 1.8% in 2020.

Growth in the rest of the world

Scotiabank’s forecasts for GDP growth in other parts of the world include:

• U.S. growth of 2.9 this year, 2.4% in 2019 and 1.7% in 2020. But the “outlook is clouded” by the possibility of increased protectionism;
• growth in China of 6.2% in 2019 “although risks remain that a prolonged dispute could shift investment to other countries in the region”; and
• growth in Mexico will be 1.9% in 2018, but any forecasts beyond that depend on public policy that is still being defined under a new government.

Read the Scotiabank outlook here.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.