Trade conflicts cloud economic horizon

By The IJ Staff | July 04 2018 01:30PM

The economic horizon is clouded “by developing and wholly unnecessary trade conflicts touched off by the US with its major trading partners,” warns Scotiabank Economics in its quarterly Global Economic Outlook report released July 3.

Jean-François Perrault, SVP and chief economist at Scotiabank says uncertainty around US trade policy, and its trading partners’ potential responses, will likely act as a drag on growth into next year. “While the global economy remains sufficiently robust to deal with reasonably minor trade skirmishes such as the tariffs on steel and aluminum, we fear we have reached an inflection point, where all future trade actions could dampen global growth in a meaningful way while raising inflation."

Canadian outlook

Scotiabank says its view on the Canadian economy remains little changed from the previous quarter. “Canadian growth is moderating, but capacity pressures are increasing. Combined with strong demand from the US, we expect recent business investment gains to continue as Canada's marginal additional sources of growth shift from residential real estate and consumption to trade and business activity,” says the bank.

The report says expansion is anticipated across all provinces this year, led by B.C. and Alberta, which will benefit from strengthening business investment to address capacity constraints in key industries.

Bank of Canada rate expected to rise

In addition, the report says the Bank of Canada is expected to raise rates another 125 basis points, to 2.50 per cent, by the end of 2019. Scotiabank says it expects two more 25 bps increases during 2018 in the BOC's target overnight rate, with the first of these coming this month, and three additional 25 bps increases during 2019.