Trudeau Embraces the Economy Just as It Begins to Gear Down

  • Prime minister dodges attacks by focusing on robust growth
  • Canada led G-7 last year but is forecast to see slower gains

Justin Trudeau

Photographer: Cole Burston/Bloomberg

All Justin Trudeau wants to talk about is the economy. That may change.

The Canadian prime minister spent the end of 2017 on the defensive over tax changes, his finance chief and an ethics reprimand. He often parried the attacks by saying his political opponents were only slinging mud because they didn’t want to talk about the economy, which led the Group of Seven in growth last year.

Trudeau’s defense is about to weaken, with Canada’s economy poised to fall back to Earth this year from an expected 3 percent gain in 2017. The country will expand at a still solid pace of 2.2 percent in 2018, behind the U.S. and tied with Germany for second in the G-7, Bloomberg survey estimates show. Canadian growth is then forecast to slow again to 1.8 percent in 2019.

Strong growth last year “probably moved the Canadian economy close to capacity, so as a result there are capacity constraints that are starting to kick in,” Paul Ferley, assistant chief economist at Royal Bank of Canada, said in an interview. In a report last month, RBC forecast growth of 2.9 percent in 2017, 1.9 percent in 2018 and 1.6 percent in 2019, all slightly below consensus estimates. “Growth of 1.9, given the circumstance, is still a solid pace,” Ferley said.

A rebound in business investment, which slumped in 2015 and 2016 in the aftermath of the oil shock, helped drive last year’s robust growth, Ferley said. Other factors included the recovery from a major 2016 fire in the heart of Alberta’s oil patch, and the introduction of a new child benefit that the Bank of Canada has praised and has helped boost spending.

It’s not all bad news for Trudeau. If growth were to continue at 2017’s pace, it could lead to excessive inflation, Ferley said. “It’s not undesirable to see that moderation.”

Under Fire

But bad news dogged the prime minister as the year drew to a close. Canada’s ethics watchdog found last month that Trudeau broke the rules with a vacation the previous year to an island owned by the Aga Khan, and his government had to backtrack on tax changes that angered small businesses and eventually thrust Finance Minister Bill Morneau’s own finances into the spotlight.

“For months, the prime minister and minister of finance have tried to minimize the devastating impact that their tax changes will have,” Conservative Leader Andrew Scheer said in the legislature before it broke for the holidays.

Trudeau pointed to the latest jobs data in response. Canada’s unemployment rate is below 6 percent for the first time since 2008, and the economy has added nearly 400,000 jobs over the past 12 months. “The positive outcomes leave the opposition with nothing to do but to fling accusations and throw mud,” the prime minister told lawmakers. 

In a year-end interview with broadcaster Global News, Trudeau added: “If they’re spending all their time on personal attacks and on supposed ethical issues, why aren’t they talking about the economy?”

For now, the strategy is working. Consumer confidence is nearing a record high, phone polling conducted by Nanos Research for Bloomberg shows, particularly in Quebec -- a region essential to Trudeau’s re-election hopes in 2019. His Liberals have rebounded in polls since reaching a low in October, with Nanos polling conducted for CTV News putting them at 42.8 percent support, 13 percentage points ahead of the Conservatives, their nearest rival in Canada’s multiparty system.

— With assistance by Catarina Saraiva

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