A Not-So-Nice Surprise for Canada’s Economy
Economic Check-In: Trade Wars Plus a Weakening CAD Equals a Slowing Economy
For the first time this year, Canada’s economic growth numbers are below expectations.
Citigroup Inc.’s surprise index – which measures economic ‘surprises’ and falls when economic data ends up worse than expected – dropped below zero this week for the first time since last December. Missing expectations essentially signals that Canada’s economy might be slowing down at a faster pace than what analysts forecasted.
This is being attributed to concerns over the ongoing U.S/China trade war (what else is new?) and an ever weakening Canadian dollar – which is now at an almost 6-week low against the dollar of our friends to the south.
This latest stat from Citigroup on Canada’s economy is following a slight downward trend across the board. Reports this month on jobs, trade, manufacturing and housing starts, while not demonstrably bad, have all left something to be desired – not unlike the unveiling of Tesla’s new Cybertruck.
So far this year, Canada’s economic position has been good – not great, but good – enough to keep the Bank of Canada from cutting interest rates. We should note that Canada’s the outlier here and it’s a testament to the resilience we’ve seen in our economy, as most OECD and G20 central banks have been slashing interest rates.
Canada’s financial system is in a relatively good place to weather any global economic storms. That said, given the less-than stellar stats we’ve seen this month, one can’t help but wonder if our central bank will feel compelled to wiggle interest rates a bit lower when it meets on December 4. We’ll just have to wait and see.
The Low Down on the CN Strike…
By now, you’ve probably heard. We’ve got a bit of a situation is going on with our country’s biggest railroad operator.
On Tuesday, around 3,000 Canadian National Railway workers went on strike, a BIG move that’s set to have pretty detrimental impact on the country’s economy.
If you’re like us, you’re probably wondering – why exactly is this strike happening?
According to a statement from labour union Teamsters Canada, the CN Rail strike is a result of the failure of employees and CN Rail to reach a contractual agreement regarding the health and safety policy for railway workers. This is the first strike at the company in the last ten years.
The impact of this strike is, in a word, enormous. Canada is a major international exporter of canola, wheat and oil – and the export of these commodities is reliant on our two main railways. No workers means no exports, and a lot less money coming in for CN Rail and the Canadian economy as a whole.
Saskatchewan’s ministers for agriculture, infrastructure and energy sent a letter to newly appointed federal labour minister Filomena Tassi, urging her to “act as expediently as possible to end this potential labour disruption from occurring”, and Alberta Premier Jason Kenney and his energy minister Sonya Savage have called on PM Trudeau to enact legislation to bring CN Rail employees back to work.
According to Savage, a disruption to the “170,00 barrels of Western Canadian oil” shipped every day by CN Rail would have a MAJOR impact on our country’s economic health.
To top it off, the ongoing strikes have led to layoffs within the company, and propane shortages in Eastern Canada.
Here’s to hoping a suitable agreement is reached soon – for the sake of the safety of railway workers, the health of the company, and for Canada’s hurtin’ economy.
Canada Needs to Smoke More (Legal) Weed…
For the economy’s sake, people.
Valuation of cannabis companies soared back in October 2018 when recreational use of the drug was legalized. Yet this September, legal recreational sales declined all over Canada for the first time- with New Brunswick facing the biggest hit (40% decline).
This is a worrisome trend for all major cannabis companies, as their inventories are growing but revenues are declining.
Cannabis stocks also took a major hit, with Canopy Growth, the world’s largest cannabis company, diving 14% last Thursday when they announced quarterly sales much lower than anticipated.
So why exactly has the pot sector turned bearish?
First, the illicit market still remains the go-to source for recreational cannabis due to lower prices and convenience.
Second, some analysts claim that the decline is caused by the ‘back-to-school’ phenomenon – the idea that people tend to use more cannabis when they are in the summer holiday mood.
Third, and most likely, is that the decline is caused by lack of adequate legal supply in the country. Currently, Ontario (our most populated province) has only 24 authorized stores open, compared to 300 in Alberta.
The private sector claims that the government has been too slow to hand out licenses, which has hampered sales, and greatly benefited the illegal cannabis market. As it stands, industry experts estimate that legal marijuana sales total $1.9 billion, compared to $2.3 billion in the black market.
The recent regulatory approval of marijuana-laced beverages and edibles may change things up, but it will likely take a few months to get those products onto shelves.
Bluntly speaking (hehe), it remains to be seen whether the recent decline in legal cannabis sales is a permanent trend or not. For now, a rocky and uncertain path lies ahead for the Canadian cannabis companies.