Conference Board of Canada says potential breakup of NAFTA and daily threats of new tariffs weigh heavily

Mario ToneguzziThe Canadian economy is expected to grow by 1.8 per cent this year, down from three per cent growth last year, and the threat of a trade war with the U.S. could add a further shock to the economy, says the Conference Board of Canada.

“An easing pace of consumer spending, potential breakup of NAFTA and daily threats of new tariffs across a wide range of goods, including in the automotive sector, will weigh on Canada’s economic growth prospects,” said Matthew Stewart, director of national forecast, as the board released its Canadian Outlook Bulletin on Monday.

It said Canada’s export sector will remain on shaky ground over the near term as rising protectionist measures from the United States and continued uncertainty surrounding the outcome of the North American Free Trade Agreement (NAFTA) renegotiations dominate and undermine the sector’s outlook.

“This is particularly true for the heavily challenged non-energy sector, which has already witnessed several industries being subjected to tariffs in recent months.

“Meanwhile, the prospects of a NAFTA dissolution remain high. A collapse in the 24-year-old trade agreement represents a major downside risk to the Canadian economy,” said the board.

“The Conference Board expects that the demise of NAFTA would subtract about 0.5 per cent from our growth projections but this is under an assumption that tariffs remain low, in line with World Trade Organization rules. Canada could be hit much harder given recent threats and tariffs already applied on a wide range of imports by the United States.”

It expects export growth to increase by a “modest” 1.4 per cent this year.

On a more positive note, Canadian companies made substantial increases to plant and equipment investment in the first quarter of 2018. The increase in business investment was long overdue and will help ease record high capacity utilization across many sectors of the Canadian economy. Current demand and capacity conditions would typically result in strong growth in business investment but many firms are reluctant to ramp up spending due to concerns about the future of NAFTA, access to the U.S. market and the prospects of a global trade war, added the board.

Respected business writer Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald in various capacities, including 12 years as a senior business writer.

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