The world sailed into 2018 on the winds of confidence, with markets surging and growth abounding. It crash-landed at the close. The Dow Jones ended down for the first time since the financial crisis, and lost ground for only the second time in a decade.
Will the new year bring new resolve? Or new fear?
A little of both, most likely, but we think there’s still hope for some good times ahead.
At RBC Economics, we used the recent market volatility to step back and look at some of the bigger trends that may shape 2019 and beyond. Our report, Navigating 2019, offers hope for a continued expansion, although we still harbour concerns over trade and investment.
Here are the trends we think will shape the year ahead:
1. A Consumer Squeeze.
How will rising interest rates impact heavily-indebted consumers? A lot. With two rate hikes expected in 2019, the average household will pay $1,000 more to service its debts. Some good news: we expect household incomes to rise more than that. But let’s not get too Pollyannaish. Expect some belt-tightening in 2019 as households cut back on big ticket purchases like new cars and trucks.
2. Stronger Housing Prices.
Low interest rates went hand-in-hand with rising house prices. But just because rates are now rising, don’t expect a major decline in 2019. We see prices in Canada’s major cities holding steady in 2019, thanks to Canada’s lowest unemployment rate in more than 40 years and the fastest-growing population in the G7. A soft landing is in the cards. Not welcome news for potential homebuyers, as affordability will only worsen in the year ahead.
3. More Labour Shortages.
They’re here to stay. Tough for employers, and good news for job-seekers, especially highly skilled ones. Many employees this year may be enticed to demand pay increases – a rarity in recent years – or switch employers to get the same result. Employers should start thinking long-term about staffing needs. Through the 2020s, more than 270,000 people are expected to retire – every year.
4. More Government Debt.
Households aren’t the only ones carrying big debt loads. Governments will also see their spending options dwindle as rates rise. Over the next half decade, debt charges will be the second fastest-growing spending item for the federal government, after seniors’ benefits.
5. Better Oil Market Conditions.
In the energy sector, the price gap between Canadian and international oil that dominated headlines last year will be smaller in 2019, after the Alberta government’s production cuts and purchase of rail cars to ship crude.
6. Better Business Conditions.
Can Canadian businesses compete on the world stage? The answer has tended to revolve around taxes, but an equal challenge may be red tape. Consider this: It takes longer to get construction permits in Canada than in any other G7 country. Ottawa’s Fall Economic Statement included both tax measures and a deregulation plan. If there’s progress on the latter, it could go a long way to closing Canada’s competitiveness gap.
7. Trading Hope.
Trade tensions between the U.S. and China will loom large over the global economy, with Canada caught in the crossfire. As worrisome as that bigger dispute may be, we shouldn’t lose sight of the fact it touches only a small fraction of total trade for the U.S. and China. Of course, a full-blown trade war would lead to more stock market volatility, more uncertainty over business investment, and potentially higher prices for consumers. Anything less won’t eat heavily into global growth.
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As Senior Vice-President, Office of the CEO, John advises the executive leadership on emerging trends in Canada’s economy, providing insights grounded in his travels across the country and around the world. His work focuses on technological change and innovation, examining how to successfully navigate the new economy so more people can thrive in the age of disruption. Prior to joining RBC, John spent nearly 25 years at the Globe and Mail, where he served as editor-in-chief, editor of Report on Business, and a foreign correspondent in New Delhi, India. Having interviewed a range of prominent world leaders and figures, including Vladimir Putin, Kofi Annan, and Benazir Bhutto, he possesses a deep understanding of national and international affairs. In the community, John serves as a Senior Fellow at the Munk School of Global Affairs, C.D. Howe Institute and is a member of the advisory council for both the Wilson Center’s Canada Institute and the Canadian International Council. John is the author of four books: Out of Poverty, Timbit Nation, and Mass Disruption: Thirty Years on the Front Lines of a Media Revolution and Planet Canada: How Our Expats Are Shaping the Future.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.