The Bank of Canada announced on Dec. 4 that it would maintain its overnight interest rate at 1.75 per cent.

This rate has not changed since Oct. 2018, which is a good sign of the resilience of Canadian consumers, said Pratte Portfolio Management (Pratte), in its weekly bulletin.

Return of the oil industry

The oil industry outlook is looking positive, according to a presentation by iA Securities at the Calgary Petroleum Club in early December. Clément Gignac, the senior vice-president and chief economist, was optimistic regarding Alberta’s economy, particularly the oil industry. “Despite the current uncertainties associated to different pipeline expansion projects, it is worth noting that Alberta economic fundamentals are still strong and impressive,” he said.

"Alberta has posted the highest employment/population ratio last month and still remains on the first step of the podium, by far, regarding the GDP per capita, which is above $80,000,” he said. “It is worth noting that Alberta has the lowest net debt/GDP ratio among all provinces and the second lowest fiscal burden in Canada, thanks to the absence of a provincial sales tax,” he said.

Strong retail sales

In its bulletin to investors, Expertiz Gestion de patrimoine (Expertiz) also underlined the Canadian economy’s resilience. Retail sales were higher than expected, and annual economic growth has been relatively stable since the boom of 2016-2017. This resilience has shown itself despite trade tensions and slowing global economic growth in recent months, read the bulletin.

Inflation hit Canada’s target of 1.9 per cent and the Bank of Canada is comfortable with its current position. The Bank stopped raising its rates in 2018, which contrasts with the Federal Reserve, which continued to increase rates, but then had to cut rates twice this year, observes Expertiz.

Tariffs

There is, however, pressure on the Canadian economy, such as trade tariffs, said Pratte. Getting used to issues with China, investors were taken by surprise by American president Donald Trump. The bulletin said he recently announced his intention to impose more trade tariffs, which could go up to 100 per cent on $2.4 billion of French products.

More uncertainty came in early December with Trump’s announcement of tariffs on steel and aluminum from Brazil and Argentina, said the bulletin.

In a recent weekly economic publication from iA Financial, Gignac said he considered 2019 an unusual year for financial markets. Despite strong market returns, he says there is still no sign of exuberance.

Low employment rate

Despite Alberta’s employment rate, iA said there has been an overall decline in employment in Canada in November. This could be cause for concern, as employment spiked in the United States over the same month.

Sébastien McMahon, senior portfolio manager, stated in iA’s weekly economic publication that he was surprised to see the worst employment rates in Canada in ten years. Monthly job creation was in free fall in Canada in November, he noted. Meanwhile, the growth in the number of jobs in the United States was spectacular.

A strong economy

Vanguard Canada (Vanguard) emphasized Canada’s success globally. In its Economic and Market Outlook for 2020: The New Age Of Uncertainty, Vanguard said global growth is slow, but Canada is “a bright spot” among developed economies. Vanguard anticipates growth of 1.6 per cent in Canada, of 1 per cent in the United States and the Eurozone, and of 5.8 per cent in China.

Trade tensions affect the global economy, but less so in Canada, said Todd Schlanger, senior investment strategist in Vanguard’s investment strategy group. He said in Canada the situation is slightly more encouraging, and that the labour market’s resistance as well as significant growth in wages could lead to greater economic growth than most developed countries in 2020, as well as a slight improvement from 2019.

Lower returns

Vanguard expects modest returns in Canada. It said the stock market should see annual returns of 3.5 per cent to 5.5 per cent over the next ten years. As for Canadian fixed income securities, annual returns should be between 1.5 per cent and 2.5 per cent over the next ten years.

These returns are lower than those of the previous decade, said Schlanger. The next decade may be more difficult for investors. He said in a new era of uncertainty, Canadian investors should prepare for market volatility due to trade tensions and slowing economic growth in the United States, which could impact Canadian exports and lower the price of basic products.

Schlanger said the Canadian housing market should remain stable, mainly due to favorable interest rates. He said lower lending costs allow for greater access to property, stimulate growth for businesses and lower the cost of debt repayment. The real estate market should have good resistance to unexpected economic shock. He said investors should diversify their portfolios and focus on long term investment.