There is no good news for the Canadian economy if the North American Free Trade Agreement fails or if there’s a trade war with the United States, says Robert Kavcic, senior economist with BMO Capital Markets.
Mainly because of the unknown, the Bank of Montreal’s economic outlook for Canada in 2018 has softened quite a bit since it indicated in a forecast last fall of growth of three per cent, says Kavcic.
BMO has revised its projection by lowering its GDP expectation for 2018 by one full percentage point, he says. Now, the bank’s economists expect Canada’s gross domestic product, which is a measure of economic growth, to be about two per cent in 2018.
“Atlantic Canada is pretty well following that national trend,” he says. “The one thing that I would say, that probably has changed, we got some important data out last week on capital expenditure intentions across Atlantic Canada and they were pretty weak still. And those are usually a pretty good indication of what’s happening with business investment and government spending.”
Kavcic says Atlantic Canada is going through a period now of private sector projects coming to completion and at the same time there is a little bit of fiscal restraint across the provincial governments in the region.
As a result of the slowdown in spending, it will drag a little more on economic growth over the next year or two, he says.
“But we’re still getting positive growth, around one per cent or so, for all of Atlantic Canada. That doesn’t sound like a lot, but keep in mind, too, potential growth in Atlantic Canada is just a lot slower than in the rest of the country,” says Kavcic.
There are many moving parts when considering the impact of a failed NAFTA — currency, pricechanges, and trade substitution with other countries or interprovincially.
According to BMO, the simplest way to assess the potential impact on each province is to look at each one’s reliance on, and exposure to, U.S. exports.
If one looks at the U.S. exports as a share of GDP across Atlantic Canada, it’s up there pretty high, he says. New Brunswick is actually the highest in Canada at 29 per cent; some of the other Atlantic provinces are just a bit lower than that.
“When you drill down a little more . . . and you strip out the industries that we are thinking are most at risk if NAFTA was to fall apart, the share of exports and industries at higher risk are expected to be a little bit smaller in Atlantic Canada than in the rest of Canada, especially when compared to somewhere like Ontario where you have a big auto sector, for example,” Kavcic says.
In a recent interview with Jamie Loughery, senior vice-president BMO Private Banking Atlantic Canada, says despite the immediate concern about the shifting economic conditions there are a significant number of clients in the Atlantic provinces who seek out assistance to help with planning for business succession and/ or the inter-generational transfer of wealth.
For some institutions there would be a dollar value on who the private banking clients are, Loughery says, but a larger measure of whether someone should become a private banking client is based on the complexity of the individual’s personal finances.
“And so we’ll have businessowner clients and professionals, who manage through holding companies, who have some more complex financial planning needs,” he says. “Many of our clients would have cross-border needs, and so (would be) managing their personal affairs across the board or even globally.”
Should the trade between Canada and U.S. become more complicated, it may well expand the need for private banking assistance, because the traditional retail bank is not suited to meet their requirements.
“The retail operation is fantastic,” says Loughery, “If you go and stand in a branch and say ‘I’ve got a complicated tax issue I would like some advice on,’ that’s where we would be introduced, as an example.”
ROGER TAYLOR THE CHRONICLE HERALD