Economic Outlook

We think the domestic economy will downshift from last year’s pace, with growth slowing as improved business investment and exports fail to offset slower household spending. We don’t think a recession is impending, but economic imbalances are likely to hold back the pace of growth in this latter stage of the cycle.

Asset Class Returns chart
Source: Bloomberg, 9/30/2017. GDP and household spending growth in 2017 represented by the average of the first three quarters of the year.


Labour and business conditions offer support – The unemployment rate has fallen below 6% for the first time since 2008, which should begin to lift wage growth from recent weak levels. Business investment rebounded in 2017, and though flattish oil prices may restrain capital expenditures in the oil patch, overall spending should benefit from higher corporate profits and rising sentiment.

Housing headwinds – The red-hot housing market’s halo benefit on household spending (the largest share of GDP) is likely to cool this year. Home sales activity relative to new listings has fallen recently, which has historically signaled a slowdown in housing price appreciation. Meanwhile, the debt-to-income ratio is at record highs and the domestic savings rate has fallen by half since mid-2015, leaving less gas in the tank for consumers.

NAFTA renegotiations are a risk – Export activity is poised to contribute more to GDP this year, helped principally by faster growth in the U.S. We don’t think NAFTA will be completely scrapped, but we anticipate negotiations to ultimately involve some concessions from Canada that could result in a modest -- not dramatic -- impact on domestic GDP.

Action for Investors - Given our view for sustained but slower economic growth, we think neutral allocations between equities and fixed income are appropriate. We maintain our recommended underweight allocation to Canadian equities. International equities (U.S. and overseas) and domestic sectors with less earnings sensitivity to domestic headwinds offer potential opportunities for rebalancing.

Important Information:

Equity investments carry risk, including the loss of principal. There are special risks inherent in international investing, including currency, withholding taxes and high levels of taxation, political, social and economic risks.

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