/Posthaste: Odds of a recession in Canada rise, Shopify falls 6% in pre-market, and is BoC inviting ‘hot money’?

Posthaste: Odds of a recession in Canada rise, Shopify falls 6% in pre-market, and is BoC inviting ‘hot money’?

Good Morning!

There is a 45 per cent chance of a recession in Canada, but we will most likely see slower growth, according to an analyst.

Canada enjoyed a stellar 3.7 per cent GDP growth in the second quarter, but brace yourself for a slowdown, says Oxford Economics, which expects growth to slow to 1.4 per cent this year and 1.1 per cent in 2020.

Canada faces elevated household debt, lackluster business investment to expand capacity and support exports, weakness in the energy sector and overvalued house prices, that are straining the economy’s ability to bounce back from slower growth, Stillo notes.

”Although a re-elected Liberal minority government is promising additional fiscal stimulus, risks remain tilted to the downside,” wrote Tony Stillo, economist at Oxford. “The ongoing U.S.-China trade war, slowing growth in the U.S. and globally and a plethora of underlying domestic challenges are all weighing on the outlook, keeping odds of a recession at 45 per cent.”

Bank of Canada is expected to hold interest rates on Wednesday, but analysts are especially interested in hearing Governor Stephen Poloz’s views on the economy.

The research group said while it does not foresee an imminent recession in Canada, its yield curve-based recession models continue to send “worrying signals.”

A prolonged industrial slump in the U.S. and heightened global trade uncertainty could trigger a recession in this country, Stillo said.

Bank of Nova Scotia is more measured in its forecast, but does signal weakness ahead, and notes that a Liberal post-election fiscal stimulus may not be enough to arrest an economic slowdown.

“Canada’s bloated upstream manufacturing and wholesale inventories may portend downside risk to employment and production going forward,” wrote Derek Holt, vice-president and head of capital markets economics at Scotiabank.

“Fiscal stimulus is unlikely to be a substitute for monetary stimulus and the BoC (Bank of Canada) probably wouldn’t incorporate any such effects until they became more highly anticipated,” Holt said.

“A post-election budget could implement the Liberal platform and introduce stimulus, but by the time a new budget is passed and impacts the economy it might be next spring/summer. Further, the amount of stimulus is likely to be small and in the low tenths of percentage points of GDP, while the effects on growth (not levels) are likely to prove transitory.”

Here’s what you need to know this morning:


  • Notable Earnings: Shopify Inc, Air Canada, Pan Andean Minerals Ltd, McEwen Mining Inc, FortisBC Inc, Canada Coal Inc., Yield Growth Corp/The Spey Resources Corp, Shopify Inc, Air Canada, PrairieSky Royalty Ltd

Alberta is forecasting a 30-per-cent jump in non-renewable resource revenues in order to move from an $8.7 billion deficit this year to a surplus in four years, writes Geoffrey Morgan. The province expects to pull in an extra $1.4 billion in revenues from the oilsands and an increase of $615 million in other resource revenues between now and 2022-2023 — accounting for the expected $1.8-billion budget surplus that year.

Alberta Finance Minister Travis Toews said the expectations of higher non-renewable resource revenues were based on a cautious outlook for oil and gas prices and new pipelines. “This is not a boom-time scenario. This is a very cautious revenue projection,” he said.

If no new pipelines are built, the province expects its revenues will drop by $3 billion, an amount that demonstrates how the fate of the province’s finances are tied to the success of TC Energy Corp.’s Keystone XL pipeline to the U.S. Gulf Coast, Trans Mountain Corp.’s pipeline expansion project to the West Coast and Enbridge Inc.’s Line 3 replacement to the U.S. Midwest.


— Please send your news, comments and stories to yhussain@postmedia.com. — Yadullah Hussain @yad_Fpenergy

With files from The Canadian Press, Thomson Reuters and Bloomberg

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