Briefing highlights
- Pot to artificially boost GDP
- A Doug Ford scene I’d love to see
- Markets at a glance
- OECD trims Canadian forecast
- Canopy Rivers set to go public
- Magna selling auto electronics unit
Dazed and confused
Legal cannabis is expected to boost the official measure of Canada’s economy.
But it’s really a lot of smoke. And some mirrors.
The statisticians won’t be dazed and confused by it all after marijuana becomes legal next month, but others of us might be when we see that economic growth is markedly stronger than it should be.
This is, for example, a big reason why Toronto-Dominion Bank economists raised their forecast for economic growth, even though economic growth won’t really be that much stronger.
They’re not dazed and confused, either, because they know it will be an “accounting illusion” that suddenly makes legal something that had been forbidden fruit.
“We have upgraded our economic growth forecast for 2019 to 2.2 per cent, but we would caution against reading too much enthusiasm into this,” TD economists said in a new projection this week.
“Some of the lift to next year’s growth outlook can be put down to an artificial boost from the government’s legalization of cannabis,” they added.
“On Oct. 17, the consumption of cannabis will be become legal, and shortly thereafter Statistics Canada will include both licenced and unlicenced cannabis activity in the official economic statistics.”
TD expects legalization to pump up the tally of real gross domestic product by between $7-billion and $8-billion, showing up largely in the last quarter of this year and next year’s first quarter.
“While not a massive sector in a nearly $2-trillion economy, the inclusion as a ‘level lift’ in 2018 Q4 and 2019 Q1 will impact measured growth rates.”
So, for example, what would otherwise have been economic growth of about 2 per cent in the last three months of 2018, according to TD’s forecast, would suddenly be 2.9 per cent.
Here’s how it looks:
2019 growth lifted 0.2 percentage
point by cannabis
Period/period % change (quarterly saar)
3.5%
Economic Growth
Growth ex. Cannabis
3.0
Forecast
2.5
2.0
1.5
1.0
0.5
0.0
2018Q3
2018Q4
2019Q1
2019Q2
2018
2019
Quarterly
Annual
THE GLOBE AND MAIL, SOURCE: td economics
2019 growth lifted 0.2 percentage point
by cannabis
Period/period % change (quarterly saar)
3.5%
Economic Growth
Growth ex. Cannabis
3.0
Forecast
2.5
2.0
1.5
1.0
0.5
0.0
2018Q3
2018Q4
2019Q1
2019Q2
2018
2019
Quarterly
Annual
THE GLOBE AND MAIL, SOURCE: td economics
2019 growth lifted 0.2 percentage point by cannabis
Period/period % change (quarterly saar)
3.5%
Forecast
Growth ex. Cannabis
Economic Growth
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2018
2019
Quarterly
Annual
THE GLOBE AND MAIL, SOURCE: td economics
“Because the technical change comes at the end of the year, this lift flatters the annual growth figures via the higher hand-off it imparts to 2019,” TD said.
“It is all a bit of an illusion, however,” the bank added.
As TD chief economist Beata Caranci put it later, some of this already existed but wasn’t officially measured.
“However, there are some industry elements that will be ‘new,’ such as activity related to companies listing on the TSX, ETFs that have come about, some ‘new’ retail in bricks,” Ms. Caranci said, referring to exchange-traded funds.
“But the ‘consumption’ side was already there.”
Which means you’ve got to discount certain elements to get the true picture of the economy.
And next year, Ms. Caranci added, Statistics Canada will revise its historical data to take the new, legal industry into account.
“This ‘back-casting’ of the cannabis economy will remove the growth anomaly that will be captured in Q4 2018 this time around from the level-shift up in GDP.”
(You could really impress your friends by pulling out TD’s explanation at a legal hazy pot party. Try this: ”Ah-know-mah-lee.”)
“Beneath the haze,” TD said, you’re still looking at an economy at or above capacity, and you’ll likely see the Bank of Canada raise its benchmark interest rate again in late October, depending on how talks to remake the North American free-trade agreement play out, of course.
(Which means that if you’re one of those Canadians famously buried in debt, don’t buy pot with a credit card.)
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A Doug Ford scene I’d love to see
“Oh, boy! I just can’t wait to try this at Toronto city council.”
Ontario Premier Doug Ford plows a furrow at the International Plowing Match in Pain Court Ontario, Tuesday, September 18, 2018
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Markets at a glance
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OECD trims forecast
The OECD is trimming its forecast for Canada’s economic growth next year.
The updated projection released by the Organization for Economic Development and Co-operation today now sees Canada’s economy expanding 2 per cent in 2019, rather than the 2.2 per cent it forecast earlier.
The group left unchanged its call for 2018 growth at 2.1 per cent.
“Strong U.S. demand continues to support exports, but higher borrowing costs have begun to check household spending growth and housing market pressures, and rising trade policy uncertainty could temper business investment,” the OECD added.
As for the global economy, the group warned that “the expansion may now have peaked,” with forecasts for growth at 3.7 per cent in each of this year and next, or “marginally below pre-crisis norms, with downside risks intensifying.”
Key to Canada, of course, is this: “Global trade growth slowed in the first half of 2018, with trade tensions already having adverse effects on confidence and investment plans. Additional trade restrictions will harm jobs and living standards, particularly for low-income households.”
More news
- Canopy Rivers set to go public amid pot stock trading frenzy
- Magna selling auto electronics unit to South Korea’s Hanon for $1.23-billion