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Dark clouds bring rougher seas in 2019: Don’t let the risks paralyze you

Key findings:

  • Riskier waters ahead: U.S. protectionism and international retaliation; a possible disorderly U.K. exit from the European Union; rebalancing of monetary policy by key central banks; and looming fiscal challenges in many emerging and advanced economies—all could pose threats to global growth and have economic consequences.
  • Canadian oil production slows: While crude oil prices will partially recover from recent lows and the Alberta government’s curtailment of oil production that came into effect this month aims to shore up local oil prices, 2019 should see lower oil prices and a reduction in oil production, creating a negative impact on Canadian economic growth.
  • The end of the U.S. economic boom: The U.S. economy continues to outperform others in absolute pace of expansion, but it will experience the greatest degree of slowdown over the next two years. Higher prices for tariff-affected imports, retaliatory tariffs imposed on U.S. exports and fiscal drag set the stage for a deceleration in growth to below a 2 per cent annualized pace by the fourth quarter of 2019.
  • Global uncertainty wards off business investment: Protectionism, BREXIT, financial market strains, and the rebalancing of U.S. monetary policy have tempered the willingness of organizations to make large capital outlays.

Toronto, January 16, 2019 – While Canada’s economic growth is expected to slow in 2019, Deloitte Economic Advisory’s newest outlook, Dark skies bring rougher seas, recommends companies not overreact and not allow the riskier environment to paralyze decision-making. Although Canada should be prepared to gear down amid the late stages of the business cycle, the most likely scenario for 2019 is a year of more modest economic growth.

Since Deloitte’s last forecast in October, an oil price correction and production restrictions in Alberta are expected to negatively affect Canada’s economy in 2019. Economic growth will dip from close to 2 per cent in 2018 toward 1.6 per cent in 2019, and drop to 1.3 per cent in 2020.

Although the Bank of Canada has signaled that it will eventually need to raise the benchmark overnight interest rates to a neutral level, in the range of 2.50 to 3.50 per cent, Deloitte anticipates only a half-point increase in 2019, to 2.25 per cent. The dollar will also act as a shock absorber for the economy amid downside risk and slower growth. Although Canadian firms are bracing for global economic uncertainty and slower growth at home, they should be preparing for the future rather than letting paralysis set in.

“There is no shortage of downside risks on the horizon, and coupled with the forecast of slow economic growth in the years to come, the late stages of the business cycle look daunting,” says Craig Alexander, Chief Economist, Deloitte Canada. “It’s important to know we’re returning to a more sustainable rate of growth in 2019 and a below-trend rate in 2020. However, businesses shouldn’t let global uncertainty and the shift in growth sway them from planning, making decisions, and investing in the future. Business cycles are a normal part of economic experience. Waiting for risks to play out often means missing key opportunities.”

Download Deloitte Economic Advisory’s January 2019 economic outlook.

About Deloitte
Deloitte provides audit & assurance, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights and service to address clients' most complex business challenges. To learn more about how Deloitte's approximately 264,000 professionals—9,400 of whom are based in Canada—make an impact that matters, please connect with us on LinkedIn, Twitter or Facebook.

Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

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