Canada facing economic headwinds as U.S. picks up

Where Canada used to be the envy of the financial and economic world just a few years back, things have changed dramatically, Scotiabank chief economist Warren Jestin told Benefits Canada’s DB Investment Forum on Dec. 11.

Low oil prices, a falling Canadian dollar, and a stronger U.S. economy along with higher interest rates south of the border are all having an impact on Canada’s prospects.

“While our country has not fundamentally changed in the last three years, we have gone, from an investor point of view, from being very special . . . to being an economy that is likely to be passed over by international investors in search of safety, security and liquidity,” said Jestin.

What has changed? While Europe has been in a recession, investors figuring things couldn’t get worse have started reinvesting in that part of the world.

China, of course, is also changing. After a quarter century of 10% growth, the Chinese economy is more likely to see 6% growth. The pace of growth is slowing as the economy undergoes structural change with an expanding service sector and rising average incomes.

All of these factors, along with a poor performance in places like Russia and Brazil and slowing global trade, are affecting many markets.

Today, the United States is doing well with a large amount of capital entering that market. Employment is growing much faster than in Canada. Deficits have come down and now the U.S. government is holding off on tax increases or spending cuts. Also, pent-up demand from the U.S. consumer after the financial crisis is fueling spending and helping boost the housing markets. Canada, by contrast, is struggling. “The outlook [for Canada] is uncertain,” said Jestin, citing the lingering uncertainty due to factors such as low oil prices.

All the articles from the event can be found in our special section: 2015 DB Investment Forum coverage.