April 2019

Monthly Economic Monitor

Highlights:

  • “A rough start to the year for the global economy prompts us to trim by one tick our 2019 forecast for world GDP growth. Forces of de-globalization are hurting not only export powerhouses such as the Eurozone and Japan, but also emerging markets. Nowhere is the negative impact as apparent as in China whose economy is softening fast amid U.S. tariffs on roughly half of its exports.”

    • “Our view about the 2019 U.S. economic outlook remains unchanged despite a difficult Q1. Why the optimism? Because we’ve seen this movie before. Shutdown-related weakness in the past was followed by sharp rebounds for GDP growth in subsequent quarters. The U.S. economy should bounce back after Q1 driven by consumers and housing, with both benefiting from a buoyant labour market and the persistence of low interest rates amid the Fed’s dovish turn. The main risks to an otherwise positive economic outlook, however, are Washington’s protectionist tendencies which have potential to derail not just the global economy but have significant repercussions at home as well.”

      • “Talk of an imminent Canadian recession is premature in our view. While acknowledging the many headwinds blowing over Canada, we’ve been encouraged by recent developments including surging employment and oil prices in the first quarter. We continue to expect a strong second quarter as oil production returns to normal after prior mandated cuts, and exports rise in synch with anticipated stronger U.S. growth in that quarter. Additional spending earmarked in March’s federal budget should help support growth in the second half of the year. All in all, we are comfortable with our above-consensus call of 1.6% for 2019 Canadian GDP growth.”

      *** This extract from Monthly Equity Monitor, Highlights, National Bank, Financial Market, April2019.

      Krishen Rangasamy
      Senior Economist


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      Forex

      Highlights:

      • “The trade-weighted U.S. dollar was able to shrug off the Fed’s dovish message in March and instead benefited from a slowing world economy, the return of risk aversion, and further loosening of monetary policy by other major central banks. But if trade-related uncertainties, which hampered world GDP growth in the second half of last year and early this year, dissipate and allow the global economy to bounce back, market attention would once again focus on risk-taking, something that would weigh on the greenback.”

      • “The faster-than-expected slowdown of the eurozone and still-elevated risks related to protectionism and geopolitics (e.g. Brexit, upcoming European Parliament elections), prompt us to trim our EURUSD targets for the second consecutive month.”
      • “There’s a lot of negative news already embedded in the loonie as evidenced by large speculative short positions on the currency and expectations of Bank of Canada rate cuts. Talk of imminent recession and the resulting collapse of the Canadian dollar abound in the media but is premature in our view. While acknowledging the 18Q4-19Q1 soft patch, we continue to expect the economy to bounce back sharply in the second quarter in synch with a U.S. rebound and the return of oil production back to normal after mandated cuts. Additional spending earmarked in March’s federal budget should help support growth in the second half of the year. As such, our forecast for Canada’s real GDP growth this year is 1.6%, which is near the economy’s estimated potential but above consensus. If we’re correct about growth, markets will pare back their expectations of Bank of Canada rate cuts, giving a lift to the Canadian dollar. So, while we’ve adjusted our USDCAD targets to reflect recent weakness, we continue to expect the loonie to appreciate against the USD over the near to medium term.”

      *** This extract from Economics andStrategy, Highlights, Natioinal Bank, Financial Market, April 2019.

      Stéfane Marion
      Chief Economist and Strategist

      Krishen Rangasamy
      Senior Economist

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