U.S. trade policy to drag on Canadian economic growth: Reuters poll

Thu Jan 12, 2017 9:11am EST
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By Anu Bararia

(Reuters) - The possibility that U.S. President-elect Donald Trump will follow through on his protectionist campaign promises has dented the outlook for Canada's economy, with nearly half of economists polled paring back growth forecasts.

A majority of analysts who answered an extra question in the poll said they were concerned Trump's expected trade agenda will have a serious impact on Canada's economic growth over the near- to medium-term.

The Bank of Canada is therefore predicted to hold rates steady at 0.50 percent for much longer than had been anticipated, with analysts pushing out expectations for a hike to the third quarter of 2018, versus the first quarter just a month ago.

Although, in its recent Business Outlook Survey, the bank indicated improved business prospects, economists in the poll said there was too much uncertainty emanating from Trump's threat to scrap the North American Free Trade Agreement (NAFTA).

Canada exports about 75 percent of its goods to the United States.

"If he rips up NAFTA, it is going to be a pretty harsh blow to Canadian exporters, given that the U.S. is their primary export market," said Nick Exarhos, director at CIBC Capital Markets.

"It would also have severe consequences for business investment as firms could be cautious on expanding capacity."

As the price of oil – a key Canadian export – collapsed in 2014, Bank of Canada Governor Stephen Poloz pinned his hopes on a non-energy export-led rebound in Canada, saying a combination of a weaker domestic currency and stronger U.S. demand would make a potent mix.   Continued...

U.S. President-elect Donald Trump speaks during a news conference in Trump Tower, Manhattan, New York, U.S., January 11, 2017. REUTERS/Shannon Stapleton