Search ForexCrunch

According to Nathan Janzen, Senior Economist  at RBC Capital Markets, the main risks in terms of the Canadian economic outlook from the outcome of US midterm elections are what happens to U.S. trade policy “” particularly the prospects for the passage of the USMCA and the end of existing ‘Section 232’ steel and aluminum tariffs “” and any changes to the U.S. fiscal policy stance.

Key Quotes

“The new NAFTA replacement, the ‘USMCA’, is still likely to be approved by Congress.   The Democrats will want to avoid handing the Trump administration political “wins” but   will also probably find it difficult to oppose some of the changes in the deal versus NAFTA, including the high-wage requirements in the auto sector.   Of course, the agreement will ultimately also need to be ratified by Canada and Mexico but we continue to think the most likely outcome is the deal will move forward.”

“The combination of US tax cuts and spending saw the U.S. government budget deficit balloon to $800 billion in 2018 (about 4% of GDP) under the current administration.   That is providing a significant tailwind to economic growth, some of which “” stronger growth in the industrial sector “” is spilling over into Canada. With the split Congress, political gridlock is a risk and additional tax cuts are much less likely.   There may yet be room for a compromise on spending plans, though.”