A new economic forecast from CIBC Capital Markets suggests that global growth could well disappoint investors in the near term, as previous interest rate cuts take time to boost growth, and as China potentially eases back on its program of massive fiscal stimulus. CIBC says this will “likely cap the upside for global equity and commodity markets, many of which appear to be pricing in a much brighter future.”

In North America, they add, real GDP growth in the 2 per cent range for the U.S. in 2020 and 2021 “will be about as good as it gets.” Canada, meanwhile, will be growing even more slowly in the near term. “The outlook for trend growth is even more constrained in Europe and Japan,” they write. “In sum, the global headwinds likely won’t be calmer until late in 2020 and 2021 as the lag impact from stimulus kicks in. For investors, 2019 was such a banner year across so many asset classes that pickings are likely to be slimmer in 2020.”

The report goes on to forecast GDP, real GDP, household consumption, construction, business investment, imports and exports, unemployment and housing starts for both Canada and the U.S.

Bond yields

In Canada, they say bond yields should end 2020 only marginally higher than where they began. Short rates could benefit if the Bank of Canada cuts rates by April. Consumption growth could also be flat in the year to come, and CIBC is calling for housing starts to level off. Although fiscal support for the economy is coming from the federal government, the moves are being offset by belt-tightening at the provincial level. They also say a reduction in trade-related uncertainty is not going to be a magic elixir for non-energy business investment.

In commodities, they say dissipating uncertainty over pipeline and rail capacity are keys to the bank’s view that the energy sector will be source of growth in the next two years. “But as is the case for the global economy, this long cycle for commodities demand growth will still be running at a more muted and somewhat less prosperous pace than we’ve seen the past.”

Job growth prospects

Going forward, should job growth remain muted, they add that the Bank of Canada could be pushed into action to support the non-energy parts of the economy, rather than being preoccupied with restraining debt accumulation. “A rate cut would also get the ball rolling on currency depreciation, something we see as a necessary ingredient in 2020 and 2021 to rotate demand towards business investments and exports,” they write. “Non-energy exports and business investment have long been sore spots in terms of growth, but will now be more of a focal point as housing and consumption lose vigour.”