Scotiabank’s Global Outlook: lower odds of a U.S. recession

By Kate McCaffery | January 14 2020 01:21PM


Scotiabank Economics published its first quarter Global Economic Outlook report Jan. 13. In it they say an expected trade truce between China and the U.S. significantly reduces the odds of a recession occurring in the U.S. in the coming months.

That said, they add that elevated event risk is here to stay as long as President Donald Trump remains in power.  The report also looks in depth at the future economic prospects for regions around the world, at U.S. and Canadian monetary policy, capital markets, commodities and future prospects for foreign exchange.

Trade-related uncertainty

“A few days into the New Year, President Trump reminded us that event risk will remain a feature of his presidency,” say authors of the report entitled A Most Uncertain World, Take 2. “We view developments with respect to Iran as less important from a direct economic and financial perspective, but very important from an uncertainty perspective. While trade-related uncertainty will be lower than the peaks observed (in the third quarter of 2019), it will remain elevated so long as President Trump is in office.”

The bank adds that the evolution of business and household confidence will be critical to global economic and financial prospects going forward. Although there are signs of improvement in many countries in this respect, Canada is heading in the opposite direction, as consumer confidence fell sharply in the final months of 2019.

Consumer confidence declines in Canada

Overall, the report calls for modest expansion to continue throughout much of the global economy, while growth in Canada and the U.S. is expected to fall somewhat, relative to 2019. They add that recent declines in consumer and business confidence is increasing the odds of a Canadian recession.

“We still believe a recession in Canada and the U.S. is unlikely, but it is clear that Canadian households are much less confident in the outlook now than they were three or four months ago,” say the report’s authors. “We continue to believe some policy easing will be required in the U.S. and Canada. In the U.S. we think 25 basis points will be required around mid-year, whereas we think there is a bit more urgency in Canada. We think the Bank of Canada will trim rates by 50 basis points to guard against the possibility of a more dramatic slowdown if consumer confidence continues to deteriorate.”

All told, the bank is calling for Canadian economic growth of 1.5 per cent in 2020, following an increase of 1.6 per cent in 2019.

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