As it adopts a more sustainable pace, the country is expected to lead G7 in growth
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Flat growth in July ended an eight-month streak of acceleration for Canada’s economy, but rather than a sign of weakness, it could be a sign of an engine that’s shifting to a more sustainable pace.
“Growth in the first half of the year came in at an annualized rate of 4%, which was unlikely to be supported over the long term,” said HSBC Global Asset Management in its most recent market review and outlook for Canada.
Against the country’s broader economic advance, the S&P/TSX Composite Index also ended the third quarter on a high note; it was up 3.7% by the end of Q3, compared to the S&P 500’s, which went up only 0.5%. The Canadian stock market saw positive returns from seven out of the 11 S&P/TSX composite sectors, mainly driven by energy, materials, and consumer discretionary sectors.
Canadian bonds, meanwhile, ended the third quarter down by 1.8%, with the FTSE TMX Canada Universe Corporate Bond Index finishing 1.3% lower. Despite this, the firm said that bond valuations are improving on the whole. “[W]e are encouraged by what appears to be a return to a more normal market scenario where bonds have the potential to compete with equities,” it said.
Driven by factors including strength in the consumer discretionary sector, surging auto sales, and accelerated wage growth, Canada has surpassed analysts’ expectations. According to HSBC’s report, the OECD has revised its forecast for Canada’s economic growth this year from 2.8% to 3.2%. “This is the highest expected growth in the G7,” the report said. “In 2018, the OECD forecasts Canadian growth at 2.3%.”
Looking ahead, the firm said it expects Canada’s economy to be driven by global economic growth, particularly from the US. Given the importance of exports, it said, a weaker Canadian dollar should also be beneficial.
“As the Bank of Canada pauses the current cycle of rate hikes, the loonie will likely remain under some modest downward pressure,” the bank said, adding that it will continue to focus on global headwinds such as the Brexit negotiations, ongoing economic reforms in China, and US President Trump’s ability to push his pro-growth agenda forward.
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“Growth in the first half of the year came in at an annualized rate of 4%, which was unlikely to be supported over the long term,” said HSBC Global Asset Management in its most recent market review and outlook for Canada.
Against the country’s broader economic advance, the S&P/TSX Composite Index also ended the third quarter on a high note; it was up 3.7% by the end of Q3, compared to the S&P 500’s, which went up only 0.5%. The Canadian stock market saw positive returns from seven out of the 11 S&P/TSX composite sectors, mainly driven by energy, materials, and consumer discretionary sectors.
Canadian bonds, meanwhile, ended the third quarter down by 1.8%, with the FTSE TMX Canada Universe Corporate Bond Index finishing 1.3% lower. Despite this, the firm said that bond valuations are improving on the whole. “[W]e are encouraged by what appears to be a return to a more normal market scenario where bonds have the potential to compete with equities,” it said.
Driven by factors including strength in the consumer discretionary sector, surging auto sales, and accelerated wage growth, Canada has surpassed analysts’ expectations. According to HSBC’s report, the OECD has revised its forecast for Canada’s economic growth this year from 2.8% to 3.2%. “This is the highest expected growth in the G7,” the report said. “In 2018, the OECD forecasts Canadian growth at 2.3%.”
Looking ahead, the firm said it expects Canada’s economy to be driven by global economic growth, particularly from the US. Given the importance of exports, it said, a weaker Canadian dollar should also be beneficial.
“As the Bank of Canada pauses the current cycle of rate hikes, the loonie will likely remain under some modest downward pressure,” the bank said, adding that it will continue to focus on global headwinds such as the Brexit negotiations, ongoing economic reforms in China, and US President Trump’s ability to push his pro-growth agenda forward.
For more of Wealth Professional's latest industry news, click here.
Related stories:
What markets are best positioned for growth?
Trudeau and Poloz on a collision course
