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Business Briefing ‘From ebullient to dreadful’: That’s the economic sentiment, not the reality

'From ebullient to dreadful': That's the economic sentiment, not the reality

Briefing highlights

  • Economy not as bad as you’d think
  • Markets at a glance
  • Magna sales rise 7.3 per cent
  • Telus boosts dividend as profit up
  • Canadian Tire sees sales jump

The view of Canada's economy may have plunged "from ebullient to dreadful," but the reality is somewhat better.

Economic growth is certainly slowing – it would have been damn near impossible to match the second quarter's annual pace of 4.5 per cent – but we haven't suddenly gone "from boom to bust."

That, at least, is how Bank of Montreal's Benjamin Reitzes sees it. And some other observers, too.

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Mr. Kavcic, BMO's Canadian rates and macro strategist, was commenting on last week's reading that showed the economy contracting 0.1 per cent in August after stalling in July, and the latest, cautious view from the Bank of Canada.

"Sentiment around the Canadian economy seems to have gone from ebullient to dreadful in a few short weeks," Mr. Reitzes "The more cautious turn by the BoC has definitely pushed markets as well," he added in a recent report.

"[Last] week's negative August GDP print only reinforced those nervous Nellies, but the devil was in the details."

He cited two temporary factors that helped stall economic growth, both involving maintenance, one at a chemical plant and the other at an oil platform.

"Indeed, absent those two factors, GDP would have come in at +0.1 per cent (a low 0.1 but still positive)," Mr. Reitzes said.

"While August was weak, the reversal of those factors suggests that we'll get a solid rebound in September," he added.

"We had the first taste of September data [last week] with trade, which wasn't overly encouraging. The strike at an auto plant in the second half of the month hit exports hard and will likely show up in the manufacturing data, as well. However, that too will reverse in October."

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As Bank of Canada Governor Stephen Poloz put it this week, "a lot of pieces need to fall into place before we can be certain that the economy has made it all the way home."

By all accounts, Canada isn't going to see the fast-paced growth of the past year. And the outlook is clouded by North American free-trade agreement negotiations, new mortgage measures from the commercial bank regulator, the Office of the Superintendent of Financial Institutions, and other things.

But a projected expansion of 2 per cent is better than nothing. Canada will end this year with a showing much better than that because of the strength of the first half. In its latest outlook, published Wednesday, Moody's Investors Service pegged growth at 2.9 per cent this year, 2.3 per cent in 2018 and 1.9 per cent in 2019.

"While the Bank of Canada has turned more cautious, and reasonably so given the uncertainties surrounding NAFTA, housing (OSFI), and the impact of prior rate hikes, the economy and outlook haven't fallen off a cliff," Mr. Reitzes said.

"Growth of around 2 per cent isn't bad, even though it will keep the BoC patient with further tightening as long as inflation pressures remain subdued."

So, yes, there's a lot out there to fret about, including what's expected to be a consumer pullback, but, like BMO, Bank of Nova Scotia sees some bright spots, as well.

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Just look at record auto sales, for one thing, said Scotiabank deputy chief economist Brett House and senior economist Adrienne Warren.

"Service-sector activity remains brisk, with notable gains in wholesale and retail trade, transportation and warehousing, and financial and professional services," they added.

"Business earnings and capital goods investment are advancing at the fastest pace since 2011. Exports have weakened in recent months, due in part to temporary production shutdowns in a number of sectors, but are expected to rebound later in the year given strengthening global industrial activity. Infrastructure spending remains supportive of growth."

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