Canadian economy a bright spot amid slowing global growth

By The IJ Staff | December 11 2019 11:49AM

Photo: Freepik

Investors should prepare for lower returns over the next decade, with periods of market volatility in the near term, says a new report, the Vanguard Economic and Market Outlook 2020, from Vanguard Investments Canada Inc.

“We expect uncertainty stemming from geopolitics, policymaking and trade tensions to undermine global growth in over the coming year,” says senior investment strategist, Todd Schlanger. “For Canada, the picture is rosier, with a resilient labour market and robust wage growth leading to growth levels stronger than most developed economies in 2020.”

Vanguard is calling for 1.6 per cent growth in Canada, compared to just one per cent growth in the United States and the Eurozone. Growth in China, meanwhile, is also expected to slow to 5.8 per cent, below the country’s own target of six per cent.

Canadian equity market returns are forecast to come in between 3.5 per cent and 5.5 per cent, annualized over the next ten years. They say Canadian fixed income returns are likely to be 1.5 per cent to 2.5 per cent, annualized over the next ten years.

Brighter housing outlook

Vanguard adds that interest rates will remain central to the Canadian economy next year, as lower lending costs improve housing affordability, stimulate business growth and moderate debt service costs. “We see a brighter picture for the housing market as a result of these lower financing costs, combined with consistent income growth. We anticipate employment growth to moderate but still stay at reasonable levels in 2020,” Schlanger says.

Vanguard also expects the Federal Reserve to cut the federal funds rate by 25 to 50 basis points before the end of 2020, while the Bank of Canada maintains current interest rates throughout the year as it balances the tradeoffs between supporting short-term growth and moderating high levels of household debt.

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