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Shake, rattle, and stall: Preparedness and perseverance key in 2019


Wednesday, April 10, 2019 6:34:00 PM

Key findings:

- Accelerated growth in Q1 won't spell a rebound: While consumption expenditures and non-residential investment improve in early 2019, further declines in residential investment and inventory destocking will likely act as an offset. As a result, growth in Q1 will accelerate, but the pace will remain sub-par, at close to 1 per cent.
- Risks will fuel recession speculation: The global economic slowdown, along with continuing risks such as protectionism, Brexit, and global imbalances, will fuel speculation of a recession. While a contraction is not the most likely scenario, businesses should be mindful that Canada and the world economy are late in the business cycle.
- Slow growth outlook makes economy vulnerable to negative shocks: The Canadian economy is now projected to grow by 1.3 per cent this year, and 1.5 per cent in 2020. This outlook should keep Bank of Canada interest-rate hikes on hold and the Canadian dollar weak. The modest pace of expansion makes the economy vulnerable to negative economic shocks, such as financial volatility and potential trade wars.
- Adapt, innovate and overcome: With difficult times ahead, the slowing domestic and global economic growth will affect economic sectors to varying degrees. Firms that better position themselves for the economic shifts, understand future risks, and resist the inclination to adopt a recession bias can be more resilient than their competitors and create new business opportunities.

Deloitte's latest economic advisory forecasts a year of dampened economic growth, a weak Canadian dollar, and a vulnerable economy. It also predicts continued speculation of a looming recession. While the report, Shake, rattle, and stall, warns of impending impact on all Canadian industries, it will affect some more than others, and could even spell opportunity for those that are prepared.

While business investment and exports are expected to pick up over the course of this year, the Canadian economy has little momentum in early 2019. It's unlikely to witness a bounce back, with gains muted as a result of the global backdrop and decelerating US economy. With the economy projected to grow by 1.3 per cent in 2019 and 1.5 per cent in 2020, the Bank of Canada is not expected to raise interest rates, leaving the economy vulnerable to negative shocks.

While the base case forecast is one of continued, albeit modest, economic growth, the slowdown may fuel speculation of a recession. While this is not the most likely outcome, it's important for Canadian businesses to think about contingencies to position themselves for future economic shifts. Being prepared does not mean adopting a recession bias. If firms cut employment and investment in anticipation of a downturn, it can help cause exactly what they fear. Instead, companies should understand the risks and stay agile to respond to economic fluctuations. Doing so can reveal silver linings in the form of new business opportunities to help separate companies from their competitors.

"Canada is expected to experience sub-par economic growth, and as a result, the economy is vulnerable to any negative surprises. In this environment, firms should be mindful of how they are affected by economic changes. Building contingency plans can help businesses to be nimble and seize opportunities even in tougher economic circumstances," says Craig Alexander, Chief Economist, Deloitte Canada. "While job creators cannot immunize themselves for the various shocks associated with economic cycles, they can remain competitive and find advantages over competitors by confronting risks with a plan, and moving forward with key business decisions without delay."