Global economic growth has slowed as the effects of tariffs and continued uncertainty regarding future US trade actions have affected business confidence and investment. There have been notable declines in manufacturing and industrial production across major developed and emerging economies.

The Canadian economy expanded at an annualized pace of only 0.4% in the final quarter of 2018. This was the weakest quarterly growth since the summer of 2016. Consumer spending, exports and business investment were all below expectations. However, growth rebounded in January and rose 0.3%, fueled by a multi-year high in manufacturing activity.

The oil production curtailment plan imposed by the Alberta government acted as a drag on growth in January, but has produced the desired effect of higher prices for Canadian oil. The price increase has prompted the Alberta government to partially decrease production restrictions ahead of schedule.

Residential construction is showing signs of slowing. In February, home sales fell 9.1% and new housing starts dropped by 16.3%. Statistics Canada data showed that national home values decreased last year for the first time in three decades. This adds to the mounting evidence that rising interest rates, declining affordability in some major markets and new restrictive lending rules, have resulted in a broad-based slowing in the housing sector.

Despite slower economic growth, the Canadian labour market continues to produce solid gains. 122,700 new jobs were created in the first two months of this year. This two month gain is the best start to a year since 1981. Canada’s economy has added 290,000 jobs since last August, the largest six-month increase since the early 2000's. These ongoing gains in employment will continue to support consumer spending and assist in maintaining positive economic momentum.

US economic activity grew by 2.2% in the final quarter of 2018. Consumer purchases weakened sharply at the end of last year, as uncertainty regarding the record long Federal government shutdown affected confidence and spending power. The shutdown lasted 35 days and furloughed 800,000 workers and stopped payments to nearly 4 million contractors. According to the Congressional Budget Office, the shutdown cost the economy $11 billion in lost activity.

Consumer spending was a key contributor to US economic growth last year and was supported by higher wage gains, tax cuts and a robust labour market. Although US retail sales stabilized in January after the sharp decline in December, it is likely that overall spending will decline this year from last year’s elevated levels.

US construction spending increased for a third straight month in February, boosted by gains in both private and public construction projects, while sales of new and existing homes increased to 11-month highs. This provides some evidence that lower mortgage rates are starting to have a positive effect on the housing market.

Despite the Trump administration assertion that trade wars are easy to win, the tariffs that have been implemented to date are negatively affecting the US economy. According to the Federal Reserve Bank of New York, tariffs are reducing US income by $1.4 billion per month by increasing the cost of targeted products. Additionally, uncertainty over trade policy is causing problems in corporate supply chains, resulting in $165 billion of trade being lost or redirected by company efforts to circumvent tariffs.

Although markets appear to be focused primarily on progress in the trade dispute between the US and China, there are other trade related issues that are still outstanding. The new agreement between the US, Mexico and Canada to replace NAFTA still faces ratification challenges as Canada and Mexico have indicated that steel and aluminum tariffs need to be removed prior to giving their final approval of the agreement.

In addition, a US Department of Commerce report investigating whether European automobiles constitute a national security threat to the US has been completed. The US administration is expected to make a decision in May on whether to impose new tariffs on automobile imports. If implemented, these new tariff costs will add further downward pressure to global trade.

The risk that the UK leaves the European Union without a negotiated agreement has increased. The European Union agreed to extend the original
Equity markets produced a sustained recovery from last year’s declines.
Although recent economic data has indicated decelerating growth, support from lower bond yields

March 29th exit deadline to April 12th after the negotiated withdrawal agreement was rejected by the UK parliament three times. The UK parliament has failed to find a majority of support for eight different pro-posed alternative options to this defeated withdrawal agreement.

The UK now has three options: leave the European Union without a negotiated agreement on April 12th, call a general election as a prelude to a second referendum, or attempt to negotiate a longer extension with the European Union in the hope that a better compromise solution will eventually be agreed upon.

It is estimated that the uncertainty surrounding Brexit has cost the UK economy 2.5% of its economic potential or £19 billion annually since the referendum was held in June 2016. The potential for further economic losses increases with further delays to the final out-come of the negotiations.