{"id":498524,"date":"2024-12-13T16:47:30","date_gmt":"2024-12-13T21:47:30","guid":{"rendered":"https:\/\/www.investmentexecutive.com\/?p=498524"},"modified":"2024-12-13T17:09:17","modified_gmt":"2024-12-13T22:09:17","slug":"canadas-stealth-recession-may-deepen-if-trump-tariffs-threat-comes-true-pm","status":"publish","type":"post","link":"https:\/\/www.investmentexecutive.com\/news\/research-and-markets\/canadas-stealth-recession-may-deepen-if-trump-tariffs-threat-comes-true-pm\/","title":{"rendered":"Canada’s \u2018stealth recession\u2019 may deepen if Trump tariffs implemented: portfolio manager"},"content":{"rendered":"

Canada is in a \u201cstealth recession\u201d and is headed toward a clearer technical recession over the next 18 months if U.S. president-elect Donald Trump follows through on his threat to impose tariffs on Canadian goods<\/a>, a Franklin Templeton Canada asset manager said on Thursday.<\/span>\u00a0<\/span><\/p>\n

\u201cWe don\u2019t have a crystal ball, we don\u2019t know how much of this turns into reality,\u201d said Adrienne Young, senior vice-president, director of credit research and portfolio manager with Franklin Templeton Canada, during a panel hosted by the firm in Toronto.<\/span>\u00a0<\/span><\/p>\n

\u201cBut Canada is an exporting and importing nation. We are small, we are open and it\u2019s going to be not great for us.\u201d<\/span>\u00a0<\/span><\/p>\n

Young said she\u2019s projecting a technical recession in Canada if the tariffs are implemented. She noted that an estimated 12% of Canadian jobs are tied to industries that export to the U.S. and that while absolute GDP growth in Canada was still positive in the third quarter of 2024, on a per capita basis, <\/span>GDP growth has declined for the last six quarters<\/span><\/a>.<\/span>\u00a0<\/span><\/p>\n

\u201cAs the Canadian economy and U.S. economy diverge in their paths, the U.S. is rumbling along pretty well, but Canada is in a stealth recession right now … and moving toward a more obvious recession over the next 18 months,\u201d Young said, adding she expects growth in GDP per capita and national GDP to slow next year.<\/span>\u00a0<\/span><\/p>\n

Franklin Templeton has not made a forecast on GDP growth in Canada. <\/span>\u00a0<\/span><\/p>\n

Young also expects the Canadian dollar to further weaken against the U.S. dollar. This, she said, is because the Bank of Canada (BoC) will likely continue its monetary easing while the U.S. Federal Reserve (Fed) may simultaneously pause its interest rate cuts.<\/span>\u00a0<\/span><\/p>\n

\u201cYes, the Bank of Canada cut 50 basis points [on Wednesday]. And yes, <\/span>the language around that was a little bit hawkish<\/span><\/a>, suggesting we’re not going to get any more 50 basis points cuts,\u201d she said. Still, she said she expects steady 25 basis point cuts through the end of next year.<\/span><\/p>\n

Young projected BoC\u2019s overnight rate, now at 3.25%, to fall to 2% or a bit lower by the end of next year, given Canada\u2019s high unemployment rate. <\/span>\u00a0<\/span><\/p>\n

In November, <\/span>Canada\u2019s unemployment rate rose to 6.8%<\/span><\/a>. Young anticipates it will reach 7.5% by the end of the next year, assuming there are no tariffs.\u00a0 <\/span>\u00a0<\/span><\/p>\n

\u201cIf tariffs are implemented, you\u2019re going to see higher numbers. And those numbers are high enough to be concerned,\u201d she said, noting a large segment of Canadian mortgage holders will be refinancing their mortgages over the next two years and will be facing much higher mortgage rates than in 2020 and 2021, which will\u00a0cause them financial pressure. <\/span>\u00a0<\/span><\/p>\n

For investors, Young said there is a \u201cgenerational opportunity\u201d\u00a0in fixed income, with lower interest rates expected in 2025. At the same time, she urged investors to take an active and nimble approach because \u201ca lot of risk is coming from a lot of different places.\u201d<\/span>\u00a0<\/span><\/p>\n

2025 not a ‘set-it-and-forget-it’ year<\/h2>\n

Michael Greenberg, senior vice-president, portfolio manager and head of Americas portfolio management for Franklin Templeton Investment Solutions, shared a more positive outlook for 2025. <\/span>\u00a0<\/span><\/p>\n

Greenberg said he does not believe that Canada is the primary target of Trump\u2019s tariff threats and that he allocates a decent amount of assets to Canadian markets. He said he \u201cwouldn\u2019t be surprised\u201d if Canada\u2019s manufacturing sector benefits from its role as a key part of the U.S. supply chain.<\/span>\u00a0<\/span><\/p>\n

However, if the tariff threat against Canada is \u201cnot just bluster, and there’s actually some more behind that, I think that would be time to be a bit dynamic and probably less exposed in Canada.\u201d<\/span>\u00a0<\/span><\/p>\n

And while tariffs would be inflationary, Greenberg noted other Trump policies could have short-term benefits that outweigh some of the “potential longer-term drag” from higher inflation.<\/p>\n

“We\u2019re probably going to need lower taxes, deregulation and probably lower oil prices \u2014 these are pretty good things for the consumer, small businesses,\u201d he added.<\/span>\u00a0<\/span><\/p>\n

Greenberg said he expects there to be a \u201cgreat environment for bonds\u201d in 2025, with BoC and the Fed \u201ccutting rates a lot more than we think.\u201d In the same breath, he said he expects inflation to be a bit higher and a bit more volatile, so investors should look to other asset classes, such as alternative investments, that can complement bonds in a portfolio. <\/span>\u00a0<\/span><\/p>\n

\u201cI think [there\u2019s] a fairly decent chance that we climb the wall of worry, but there’s going to be some bumps on the road. So I don’t think it’s a set-it-and-forget-it year \u2014 it’s a dynamic year,\u201d Greenberg said.<\/span>\u00a0<\/span><\/p>\n

Dave Wahl, another panelist and director, senior client portfolio manager with Clearbridge Investments, which is a Franklin Templeton company, said he sees investing opportunities in a few different sectors in 2025 including financials and industrials. <\/span>\u00a0<\/span><\/p>\n

He noted that Canada\u2019s banking sector has had a \u201cpretty good run\u201d over the past year, with some exceptions such as Toronto-Dominion Bank<\/a>, which Wahl expects to re-establish its footing in Canada after its money laundering scandal in the U.S.<\/a> \u00a0<\/span>\u00a0<\/span><\/p>\n

Despite a lag in performance, Wahl said he sees a long-term opportunity in the industrials sector, especially in legacy names such as Canadian National Railway Co.,\u00a0Canadian Pacific Kansas City Ltd. and Waste Connections of Canada,\u00a0along with engineering companies like Stantec Inc.<\/span>\u00a0<\/span><\/p>\n

Overall, Wahl said he sees 2025 as a year of \u201cupward momentum, but [investors should] be wary of risk and pitfalls.\u201d <\/span>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Franklin Templeton panelists share outlooks for 2025, including investment opportunities<\/p>\n","protected":false},"author":186339,"featured_media":491348,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[2313,2312],"tags":[2446,57655,2714,107334,107481,3859,107131],"yst_prominent_words":[1695,58150,57383,57382,50090,47823,36534,14713,11013,8912,7178,6351,6242,5029,2116,1384],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/498524"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/186339"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=498524"}],"version-history":[{"count":5,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/498524\/revisions"}],"predecessor-version":[{"id":498604,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/498524\/revisions\/498604"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media\/491348"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=498524"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=498524"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=498524"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=498524"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}