Volatile global trends pose threat to economic growth in 2020

TORONTO, January 3, 2020 – Volatile international trends such as geopolitical tensions, trade wars and “a host of political and industry headwinds” pose a threat to the steady growth of the Canadian economy in 2020, according to Volume 4 of The Real Economy, a quarterly report issued by accounting firm RSM Canada. 

According to the report, technology will be “the spark” that helps grow the Canadian manufacturing sector in 2020. Canadian technology-based enterprises have grown faster than other industries since 2018. The country’s IT and communications sector is growing at a four per cent rate and durable goods manufacturing jumped 2.5% in August. 

Canada’s economy will continue benefit from an open immigration policy and new wave of educated workers. Canada’s openness to immigration has attracted highly skilled workers, whose skills and expertise are helping drive growth in its economy. Without immigration, Canada’s labour force and growth would actually shrink from 1.9% to 1.3%. 

There has also been an increase in educated workers entering the labour force — 27 per cent of Canadian workers now have at least an undergraduate education, with almost one-third holding postgraduate degrees. 

The consumer sector, however, is cause for concern in the short-term. There are pockets of higher unemployment in certain provinces, while increasing housing and living costs are squeezing standards and causing tension. If job uncertainty amid a slowing market continues in 2020, it could damage the household consumption component — which makes up 57% of Canada’s GDP. 

A growing wage gap with the U.S. can be attributed to Canada’s lagging productivity. The gap is the largest it has been in 20 years (76.9%), which means that the average American’s income is almost 25% greater than the average Canadian’s. Decreasing investment and oil prices have contributed to this gap, as have low levels of next gen technology adopted by Canadian businesses — such as A.I. or robotics.

Tough times remain ahead for Canada’s energy and commodities sectors. Hesitancy in the global market in 2019 has meant a decline in appetite for Canadian energy and commodities, with a 3.9% decrease in the industry, a downward trend that looks as if it will  continue into 2020. As we head into 2020, the Canadian dollar is weakening at the potential of another oil glut, and a concurrent drop in commodity prices.

Whether that decline will be slowed or even reversed by escalating tensions in the Middle East between Iran and the U.S., and resulting spikes in the price of oil, remains to be seen. Crude oil prices spiked by three per cent Friday after Maj. Gen. Qasem Soleimani, commander of Iran’s Quds Force, was killed in an airstrike ordered by President Trump. While a weak global economy has resulted in significant spare capacity, the extent of Iranian retaliation, if any, will determine future increases. Any increase in the price of oil would benefit the Western economy in Canada.

Volume Four of The Real Economy Report from RSM also includes an article on “Canada’s lagging economy — and what to do about it.” The report notes that Canada’s ICT sector has grown substantially over the last several years, and Canada is a world leader in artificial intelligence. “Yet despite these homegrown advantages, Canadian businesses have invested little in AI and other advanced ICTs.” The RSM report makes three recommendations for boosting productivity:

1. Define and measure technology adoption of Canadian businesses on a frequent basis;
2. Increase funding in areas dedicated to advanced ICT adoption; and
3. A greater role for government departments of all kinds in building capacity to implement advanced ICTs.

By Canadian Accountant staff with files from RSM Canada. Read The Real Economy from RSM Canada.