Skip to main content
Open this photo in gallery:

FILE PHOTO: Chinese and U.S. flags are set up for a signing ceremony during a visit by U.S. Secretary of Transportation Elaine Chao at China's Ministry of Transport in Beijing, China April 27, 2018. REUTERS/Jason Lee/File PhotoJason Lee/Reuters

As folk singer Billy Bragg said, “You have to learn to take the crunchy with the smooth."

He was talking about love. But it applies just as well to economics.

In any year in the life of an economy, the positive and negative combine to tell a nuanced story. Sometimes the positives dominate, and it’s happily ever after. Other times, the negatives reign, and we talk about crises and recessions. Usually, we land somewhere in between – not as good as hoped, not as bad as feared.

In 2018, we had a year of encouraging global growth threatened by trade wars; of booming employment but tentative wage growth; of rising interest rates and falling oil prices. In the end, we were left with a year that was largely an economic success, both in Canada and globally – but with an inescapable tone of uncertainty that casts a shadow over the young 2019.

We asked five economists at Canada’s biggest banks to anticipate what might be ahead in 2019 – to each give us one key factor to cheer, and one to fear (in whichever order they preferred), as another year takes shape. Here’s what they said.

Dawn Desjardins, Deputy chief economist, Royal Bank of Canada

FEAR: Uncertainties

“Elevated policy uncertainty is casting a shadow on the outlook for the global economy in 2019. Heightened trade tensions unnerved investors in late 2018, resulting in stock markets erasing the year’s gains and commodity prices dropping. This hit to investor confidence also reflected worries about Brexit, oil prices and the shaky political backdrop in some of the world’s largest economies. Should these unsettled issues persist, they will act as a weight on global growth in 2019, which for Canada could limit demand for our exports and stymie the anticipated recovery in oil prices.”

CHEER: More jobs and wages to come

“Canada’s labour market performed very well in 2018, with 163,000 jobs created and the unemployment rate falling to a 44-year low. The increase was impressive, as the year started with big job losses. And the good news for workers is likely to continue in 2019. In mid-2018, companies were looking to fill about half a million positions. With competition for workers fierce, firms have bumped up the wages they are offering. Likely, these wage increases are going to become more broadly based in 2019. And a healthy labour market is key to helping households manage rising debt service costs in 2019.”

Avery Shenfeld, Chief economist, Canadian Imperial Bank of Commerce

CHEER: The starting point

“The best news for 2019 is where Canada and the United States stand today, with decades-low unemployment but no serious inflation pressures. That gives the central banks in both countries licence to let the good times roll, erring on the side of fewer interest-rate hikes than in past cycles. Remember that many recessions have been triggered by overly aggressive interest-rate hikes aimed at quelling inflation, and as we enter 2019, that looks to be an unlikely policy mistake.”

FEAR: Replacing the household sector

“Canada’s greatest fears lie in the risks that we are simply unable to replace housing, and debt-financed consumer spending, with other sources of growth. We reached full employment by leveraging up our household sector, without seeing much success in trade or related business capital spending.”

“Long before concerns over NAFTA, we were lagging the United States and other jurisdictions in attracting businesses to add capacity in export-oriented sectors. Have we done enough to polish up our attractiveness to such investments, or is it going to take the labour cost savings of a still-weaker Canadian dollar, with the attendant dent to our own import purchasing power, to have businesses opt to expand here?”

Douglas Porter, Chief economist, Bank of Montreal

FEAR: Financial markets

“While markets have an imperfect track record in forecasting the economy, there is little doubt that the late-year weakness is signalling slower activity in 2019. We are currently on course for the first year of net losses for both the S&P 500 and the 10-year U.S. Treasury in modern times. It’s no coincidence that this broad weakness occurred when the Fed’s reversal of quantitative easing hit full stride. We fundamentally believe that financial markets are exaggerating the negativity, but the uncertainties of trade wars and Brexit are also clouding an already dimmer growth outlook. There is the very realistic possibility that sour financial markets could spill over onto business and consumer activity – a self-fulfilling prophecy. And all of this arrives when the current business cycle is already quite extended.”

CHEER: Moderate inflation

“The fact that North American core inflation trends ebbed late in 2018 is good news. Along with a deep slide in oil prices, concerns about the North American economy overheating have largely been washed aside. This suggests that the Canadian and U.S. central banks have plenty of flexibility to potentially pause their tightening campaigns (or even reverse course) if markets weaken further and growth chills more than expected. The rapid unwinding of inflation pressure has chopped bond yields, with Canada’s key government 10-year yield ending 2018 lower than a year ago. Given that interest-sensitive sectors – housing and autos – saw the biggest cool down in 2018, a more moderate long-term rate environment could provide some important (and surprising) relief to the growth outlook.”

Derek Holt, Head of capital markets economics, Bank of Nova Scotia

CHEER: Best entry point for investors in years

“Global stocks have not been this cheap since the euro zone’s breakup was the fear du jour in 2012. Fed-driven U.S. recession fears are dominant, but U.S. monetary policy is nowhere as tight as prior to any past recession. U.S. consumer balance sheets are in excellent shape by contrast to past recessions. Markets assumed that U.S. premidterm pump priming would lead to permanently higher growth, and are repricing toward slower growth. Markets face binary risks that could well dissipate early in 2019. The risk of U.S. government shutdowns over funding is usually short lived. U.S.-China negotiations might follow NAFTA and KORUS [the free-trade agreement between the United States and South Korea] and prove to be more bark than bite. U.K. politicians may achieve a soft Brexit yet. If things take a turn for the worse, the Fed won’t hike.”

FEAR: Poor leadership

“Most of the major problems afflicting the world economy and markets these days are derived from self-imposed political risks. Predicting politics and knock-on effects has humbled many people over time, and is a serious wild card into 2019. Risks include a hard Brexit that would hit everyone, a deepened trade war between the United States and China instead of an interim compromise, a serious confrontation between Russia and the West, intensification of risks surrounding hot spots such as the Middle East and much deeper dysfunction in Washington. These human-made problems jeopardize great progress made by the world economy.”

Beata Caranci, Chief economist, Toronto-Dominion Bank

FEAR: The Beetlejuice effect

“Just like in the movie Beetlejuice, saying a word too many times makes it appear. The word ‘recession’ is increasingly creeping into media and analyst commentary. Financial and economic indicators have yet to breach levels that would signal an impending recession, but beliefs and sentiment can become self-fulfilling. According to a quarterly Duke University CFO Global Business Outlook survey, 48.6 per cent of U.S. chief financial officers believe the economy will be in a recession by the end of next year. That figure was even higher when it came to Canada.”

“Hitting the ‘pause’ button on using the recession word may prove difficult in 2019. There is little question that global and U.S. economic momentum has passed the high-water mark and government decisions will continue to play a central role in influencing sentiment. There are fast approaching deadlines occurring in the first quarter related to Brexit, the U.S. debt ceiling and U.S.-China trade tensions.”

CHEER: Broad-based job growth

“We are finally seeing an economic expansion reaching into all the corners of the labour market. The unemployment rates in Canada and the United States are hovering near historic lows, and employers appear equally willing to hire across the spectrum of low- to high-skilled workers. Low-skilled job growth is running at about 4 per cent year-to-date in Canada, outpacing overall demand. It’s not surprising in a tight market that employers are also looking across the age spectrum. The younger portion of the labour force, those aged 15 to 24 years, now faces one of the lowest unemployment rates on record, while those in the 25 to 54 age bracket have already surpassed that mark. Should job demand maintain a firm underpinning in 2019, this offers further encouragement for more marginalized workers to be drawn into the market and garner higher wages.”

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe