What are leading economists expecting from the new government?
Canadian financial institutions could see their stock rise following the federal election result, leading a broader boost for domestic equities, according to CIBC Capital Markets.
Mark Carney’s victory, albeit with a minority government, should deliver some positives in terms of tax cuts and greater spending on energy infrastructure, which will be supportive of Canadian companies and lenders.
“We would expect a slight positive bias to Canadian equities, with financials possibly leading,” CIBC analyst Ian de Verteuil opined in a note following the result. “Surely having an ex-Central banker as Canada’s Prime Minister can’t be harmful.”
The S&P/TSX Composite Index closed more than 75 points (0.31%) higher Tuesday – close to a four-week high - and futures point to a positive start to Wednesday’s trading.
The Canadian dollar lost as the election result was confirmed but is trending flat so far today (April 30).
“A Liberal minority government would likely require looser fiscal policy than previously anticipated but it remains to be seen how quickly those policies can be implemented in the backdrop of trade uncertainty,” said TD Securities strategist Jayati Bharadwaj in response to the weaker loonie.
The bigger picture is what the new government will do and what it can achieve in challenging circumstances. The budget and trade dealings with the US are paramount.
For millions of Canadian households and businesses, the state of the economy is a primary concern, and RBC Economics’ Frances Donald and Cynthia Leach say that, while they do not expect a technical recession, it may feel like one.
“Essentially no growth for the remainder of this year and more job losses. Certain sectors such as autos, steel and aluminum among others, and regions like Ontario and Quebec will feel it more,” they wrote in a commentary, adding that low and middle income Canadians may feel it more with wages stalling, savings depleted, and prices rising. Plus, weaker job security.
As for the priorities they see for the government, beyond Trump? Boosting the economy and addressing long term productivity weakness and promoting investment, deregulation and a more competitive ecosphere.
And how about rates? “In the near term, the BoC might have a few more interest rate cuts in its toolbox to soften some of the broad-based slowdown ahead,” the duo suggests.
Over at TD Economics, the team highlights that “minority governments tend to have shorter life spans, but it’s crucial that the broader interests of Canada prevail. On the campaign trail, parties were united in the fight against American politics to weaken the Canadian economy, with significant alignment in several areas: defense spending, resource development, tariffs, housing, and some tax policies.”
They highlight the approximately $130 billion of new infrastructure spending planned by the Liberals and the importance of addressing key issues for Canadians including housing affordability.
Scotiabank’s Rebekah Young looks at what’s on the prime minster’s to-do list in the coming weeks. Negotiating with Trump, or at least join the line to do so, is vital, but so to are a budget and a Throne Speech that sets out robust plans for growth.
However, Young and the team are not convinced that this will be a full-term government.
“For now, we work on the assumption that Prime Minister Mark Carney will move decisively to advance his agenda as set out in his platform, but under a minority government, we would fade much beyond the next year or two as Canadians are likely to head back to the polls before then,” she wrote.
