Macroeconomic Outlook: Trade War Taking Wind out of Global Economy’s Sail

Factory activity in several major economies has slowed, Chinese exports have been weak all year, and even the so-far resilient U.S. economy has shown some signs of strain with industrial production falling in four of the past seven months. It isn’t hard to spot the culprit: trade tensions, particularly around the U.S.-China trade war and Brexit uncertainty, are beginning to hurt global supply chains and weighing on business sentiment. Economists now expect global growth to clock in at 3.2% this year, down from the 3.9% pace expected a year ago. Against the darkening backdrop, a dozen major central banks have opted to shore up an economic expansion that’s now past the 10-year mark.

What’s notable is that the Canadian economy has hit a sunny patch amid the grey skies, as RBC Economics notes in its latest economic outlook. To be sure, the country hasn’t escaped trade tensions unscathed—Canada’s western provinces in particularly are feeling the pain from China’s ban on canola and meat, and central Canada’s heavily integrated manufacturing sector will be affected by a reordering of global supply chains. But economically speaking, things are still looking pretty good. Thanks to continued and robust job gains, the Canadian consumer is also leaning in, supporting the housing sector and helping to keep growth on a positive, if subdued, path. That’s why the Bank of Canada, unlike many global peers, hasn’t felt the need to step in and cut rates just yet, though it is keeping a wary eye on external developments.

RBC Economics predicts the Canadian economy will grow 1.6% in the second half of 2019—down from 2.1% in the first half, but still a decent pace given the hostile global backdrop. In its latest outlook for the provincial economies, it trimmed some growth forecasts for provinces exposed to the current trade woes (for Saskatchewan, that includes China’s canola ban, for British Columbia, it’s U.S. duties on softwood lumber). But due to improving demand for housing and durable goods, it raised its 2019 growth expectations for both Quebec and Ontario, with the former expected to post standout growth of 2.4% this year. For RBC Economics’ latest macroeconomic outlook, read here. For a look at what’s expected for your province’s economy, read here.

Read more on our macroeconomic outlook and provincial economic outlook.

As Deputy Chief Economist, Dawn contributes to the macroeconomic and interest rate forecasts for Canada and the U.S. Before joining RBC, Dawn worked as a reporter for Bloomberg Financial News in Toronto covering the Canadian bond and currency markets. She also spent ten years as the Canadian bond market strategist for a major U.S. bank.

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