Economic slowdown blamed on trade turmoil By: Martin Cash Posted: 7:00 PM CDT Monday, May. 6, 2019 Last Modified: 11:58 AM CDT Tuesday, May. 7, 2019 Updates

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This article was published 05/05/2019 (1964 days ago), so information in it may no longer be current.

In last month’s Monetary Policy Report, the Bank of Canada made the point that in the fourth quarter last year business investments and exports in Canada were lower than anticipated largely because of greater impact from trade policy issues.

In an interview with the Free Press on Monday, Stephen Poloz, governor of the Bank of Canada, made it clear that the economic slowdown experienced around the world in the fourth quarter — Canada included — is directly related to the trade disruption initiated by the Trump administration.

After delivering a speech in Winnipeg about the need for greater flexibility in the Canadian mortgage market, Poloz laid out in an interview how uncertainties caused by disruptions to long-standing global trade rules have delayed investments around the world that might otherwise have already been made.

“If you look at the history of tariffs from the Second World War on we have had a constant decline in tariffs globally under GATT then the WTO,” he said. “Then subsequent to WTO there have been multiple other attempts… with regional agreements like NAFTA and TPP in order again to make trade less restrictive and take non-tariff barriers and tariffs out of the way.”

He said the impact on increasingly liberalized trade rules has been “enormous.”

“To flippantly put that at risk, whether as a negotiating tactic or whatever… creates uncertainty,” he said.

He pointed out that Canada felt it first when President Trump was talking about ripping up NAFTA the moment he got elected.

“Our investment stream has been slower than our model predicted ever since Trump got into office,” said Poloz. “Then the rhetoric turned into action with tariffs on steel and aluminum against lots of countries, ourselves included.”

While the increase in prices caused by the tariffs may not have caused inflationary pressure, they have helped defer investments around the world.

While there is plenty of talk these days about a slow-growth global economy, Poloz said that absent the Trump-ist trade wars, that might not necessarily have to be the case.

“Our investment stream has been slower than our model predicted ever since Trump got into office. Then the rhetoric turned into action with tariffs on steel and aluminum against lots of countries, ourselves included”
– Stephen Poloz, governor of the Bank of Canada

“We have not seen anything to rival this,” Poloz said about the U.S-initiated trade disputes. “Now we know. We have 47 countries that simultaneously had a slow down in the fourth quarter of 2018. And it was all in the investment channel. There has to be a common denominator. There is only one I can think of.”

The Bank of Canada is forecasting growth in the Canadian economy of 1.2 per cent this year and when it comes to very slow growth forecasts for the Manitoba economy this year he said it is mostly a result of the macro picture, which is weak.

Poloz also believes weather may have been a factor in that weakness in Manitoba.

“(Nationally) the fourth quarter and the first quarter this year appear to have been very weak,” Poloz said. “The weather was really bad and there are practical implications.”

He cited recent corporate results reports from CN and CP from the last couple of weeks.

“They both showed volumes on the rails much lower than normal. Shorter, slower trains and severe weather conditions,” he said. “And what is on those trains? Our exports. Trade data was dismal and consumer data also really weak. A common factor in all those things is weather.”

The weather analysis fits into the bank’s forecast which calls for investment and economic growth to pick up starting this spring and throughout the second half of the year.

He said special things happen which can make for lower numbers in this province like Manitoba Hydro investment projects that wind down and now whatever adverse affects there will be on the disruption to exports of Manitoba canola to China.

“That just means there are some negatives to worry about (in Manitoba),” he said. “But I do think the environment which Manitoba finds itself will improve as we go through the year.”

martin.cash@freepress.mb.ca

Martin Cash
Reporter

Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.

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