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'Starting to wobble': Fidelity manager sees risk in Canadian economy, stocks – BNNBloomberg.ca

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A money manager at one of the world’s biggest investment firms says Canada is currently riskier than other parts of the world, and as a result his company’s funds are underweighting Canadian investments.

The Canadian economy is much riskier than many investors recognize, particularly with respect to excessive reliance on consumer spending, housing prices and household debt, David Wolf, portfolio manager in the global asset allocation group at Fidelity Investments and former advisor to the governor of the Bank of Canada, said in an interview with BNN Bloomberg on Monday.

“Those areas are starting to wobble,” he said, citing retail sales declining in inflation-adjusted terms by the largest amount since 2009 as well as a spike in consumer delinquencies and bankruptcies.

“There’s not much left to sustain us in the economy” considering weak business investment and export figures, Wolf said.

He sees particular risk in some of the country’s biggest sectors, such as financials. “Canadian banks really make their living off a healthy Canadian consumer,” he said.

Despite his warnings, he is not predicting a severe drop-off for the economy.

“I’m not saying we’re going to have a big recession, or that the consumer is going to have a big pullback,” he said. “But there is risk there that doesn’t exist in other markets, and that’s why we’re looking [elsewhere].”

He said while the timing is uncertain, the Canadian economy will eventually be hurt by its dependence on consumer spending, debt and rising real estate values.

“No one can predict exactly when you’re going to see the payback,” he said. “As fund managers we want to be prudent, we want to be diversified, we don’t want to take risks where we don’t have to, and that’s why we’re looking abroad.”

In a recent report, Wolf and his colleague David Tulk, a fellow portfolio manager at Fidelity, detailed the benefits for Canadian investors of “going abroad” in their fixed-income portfolios and equity holdings.

“Weaker global growth is likely to have a disproportionate toll on Canada’s small, open, commodity-producing economy,” they wrote.

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Canada's economy moves into 'recuperation phase' as second-wave impact looms – The Globe and Mail

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Canada’s economic recovery continued to moderate as summer wound down, leaving activity still well short of pre-pandemic levels before the second wave of the COVID-19 virus hit, new data from Statistics Canada show.

The agency reported Friday that real gross domestic product (GDP) rose 1.2 per cent in August from July, slightly more than its preliminary estimate of 1 per cent. It was the fourth straight month of growth, as the economy continued its rapid rebound from the lockdowns in the spring aimed at containing the virus, although the pace of the recovery has been slowing after the dramatic effects of the re-openings in May and June.

Statscan also published an advance estimate for September of 0.7-per-cent growth – which, if accurate, would mean the economy expanded by about 10 per cent in the third quarter, consistent with Bank of Canada and private-sector estimates. But that still leaves the economy about 4 per cent below its pre-COVID levels.

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With October’s sharp increase in the spread of the virus, both in Canada and abroad, renewed virus-containment restrictions threaten to put the brakes on the recovery.

“The economy is now moving into the recuperation phase, where additional gains in economic activity are harder to come by. With pandemic-related uncertainty weighing on business and consumer confidence, most industries are struggling to return to pre-pandemic levels of output,” Toronto-Dominion Bank senior economist Sri Thanabalasingam said in a research note.

The August GDP gains were led by a continued strong recovery in the service sectors of the economy (up 1.5 per cent), which were more deeply affected by the spring lockdowns and subsequent re-openings, while goods-producing sectors grew a more modest 0.5 per cent. Economists noted that the segments that drove much of August’s gains – services such as arts, entertainment and recreation (up 13.7 per cent) and accommodation and restaurants (up 7.3 per cent) – stand to be the hardest hit in the second-wave containment measures, as authorities focus on reducing contact through indoor gatherings.

“The way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in the fourth quarter,” Bank of Montreal chief economist Doug Porter said in a research report.

Earlier this week, the Bank of Canada issued new forecasts predicting fourth-quarter growth of only 0.2 per cent quarter over quarter – or 1 per cent annualized – in light of the second wave of the pandemic and the return of some government-mandated closures and business restrictions. Ontario and Quebec have already shut down indoor restaurants and bars in large urban centres where COVID-19 cases are highest, while other provinces are clamping down on indoor gatherings and debating whether additional measures are warranted.

Some economists think the central bank’s forecast is overly pessimistic.

“We suspect that with ongoing massive fiscal support, less restrictions than earlier, and, simply, that consumers and businesses have learned to operate in this new environment, the late-year setback should be relatively mild,” said Mr. Porter, who forecast that quarterly growth would top 2 per cent annualized.

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“We think there is still scope for continued rebounds in those sectors not directly affected by the restrictions, so we are pencilling in a much larger fourth-quarter gain of 5 per cent annualized,” said Stephen Brown, senior Canada economist at Capital Economics, in a research note.

But the COVID-19 virus remains a massive wild card in any economic forecast, as a growing number of countries face the prospect of renewed restrictions – while at the same time eagerly looking forward to the growing possibility of a viable vaccine in early 2021.

“We are now in a phase of the recovery that could see strong winds and dangerous tides. Navigating through the turbulence will not be easy, as much will depend on the course of the virus,” TD’s Mr. Thanabalasingam said. “Getting the spread under control could right the ship, but seas will remain choppy without a vaccine or effective treatment.”

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Canada's economy moves into 'recuperation phase' as second-wave impact looms – The Globe and Mail

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Canada’s economic recovery continued to moderate as summer wound down, leaving activity still well short of pre-pandemic levels before the second wave of the COVID-19 virus hit, new data from Statistics Canada show.

The agency reported Friday that real gross domestic product (GDP) rose 1.2 per cent in August from July, slightly more than its preliminary estimate of 1 per cent. It was the fourth straight month of growth, as the economy continued its rapid rebound from the lockdowns in the spring aimed at containing the virus, although the pace of the recovery has been slowing after the dramatic effects of the re-openings in May and June.

Statscan also published an advance estimate for September of 0.7-per-cent growth – which, if accurate, would mean the economy expanded by about 10 per cent in the third quarter, consistent with Bank of Canada and private-sector estimates. But that still leaves the economy about 4 per cent below its pre-COVID levels.

Story continues below advertisement

With October’s sharp increase in the spread of the virus, both in Canada and abroad, renewed virus-containment restrictions threaten to put the brakes on the recovery.

“The economy is now moving into the recuperation phase, where additional gains in economic activity are harder to come by. With pandemic-related uncertainty weighing on business and consumer confidence, most industries are struggling to return to pre-pandemic levels of output,” Toronto-Dominion Bank senior economist Sri Thanabalasingam said in a research note.

The August GDP gains were led by a continued strong recovery in the service sectors of the economy (up 1.5 per cent), which were more deeply affected by the spring lockdowns and subsequent re-openings, while goods-producing sectors grew a more modest 0.5 per cent. Economists noted that the segments that drove much of August’s gains – services such as arts, entertainment and recreation (up 13.7 per cent) and accommodation and restaurants (up 7.3 per cent) – stand to be the hardest hit in the second-wave containment measures, as authorities focus on reducing contact through indoor gatherings.

“The way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in the fourth quarter,” Bank of Montreal chief economist Doug Porter said in a research report.

Earlier this week, the Bank of Canada issued new forecasts predicting fourth-quarter growth of only 0.2 per cent quarter over quarter – or 1 per cent annualized – in light of the second wave of the pandemic and the return of some government-mandated closures and business restrictions. Ontario and Quebec have already shut down indoor restaurants and bars in large urban centres where COVID-19 cases are highest, while other provinces are clamping down on indoor gatherings and debating whether additional measures are warranted.

Some economists think the central bank’s forecast is overly pessimistic.

“We suspect that with ongoing massive fiscal support, less restrictions than earlier, and, simply, that consumers and businesses have learned to operate in this new environment, the late-year setback should be relatively mild,” said Mr. Porter, who forecast that quarterly growth would top 2 per cent annualized.

Story continues below advertisement

“We think there is still scope for continued rebounds in those sectors not directly affected by the restrictions, so we are pencilling in a much larger fourth-quarter gain of 5 per cent annualized,” said Stephen Brown, senior Canada economist at Capital Economics, in a research note.

But the COVID-19 virus remains a massive wild card in any economic forecast, as a growing number of countries face the prospect of renewed restrictions – while at the same time eagerly looking forward to the growing possibility of a viable vaccine in early 2021.

“We are now in a phase of the recovery that could see strong winds and dangerous tides. Navigating through the turbulence will not be easy, as much will depend on the course of the virus,” TD’s Mr. Thanabalasingam said. “Getting the spread under control could right the ship, but seas will remain choppy without a vaccine or effective treatment.”

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Canadian economic growth cools to 1.2% in August – CBC.ca

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The Canadian economy grew in August as real gross domestic product rose by 1.2 per cent in August, Statistics Canada reported Friday. 

That marked the fourth straight month of growth following the steepest drops on record back in March and April amid pandemic lockdowns. August’s figure was down from the 3.1 per cent expansion seen in July.

The August number was still ahead of what forecasters had been expecting. According to financial data firm Refinitiv, economists had been predicting growth of 0.9 per cent for the month.

Despite the recent string of growth, overall economic activity is still about five per cent below February’s pre-pandemic level, Statistics Canada said.

September growth is forecast

Preliminary information from Statistics Canada indicates real GDP was up 0.7 per cent in September, with increases seen in the manufacturing and public sectors, as well as in mining, quarrying and oil and gas extraction.

“This advanced estimate points to an approximate 10 per cent increase in real GDP in the third quarter of 2020,” Statistics Canada said. Back in the second quarter, the country’s GDP shrank by 11.5 per cent in the three-month period between April and June. 

Assuming the economy contracts in October and November as a result of a resurgence of coronavirus cases, fourth-quarter GDP looks likely to undershoot the Bank of Canada’s “tepid” forecast for a seasonally adjusted annual rate of one per cent, said CIBC Capital Markets senior economist Royce Mendes.

“It appears that the economy was slowing more than expected heading into the fourth quarter, and the most likely outcome now suggests that GDP barely advanced during the period,” Mendes said in a commentary.

BMO chief economist Doug Porter said the way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in the fourth quarter.

“However, we suspect that with ongoing massive fiscal support, less restrictions than earlier, and, simply, that consumers and businesses have learned to operate in this new environment, the late-year setback should be relatively mild,” Porter said. “In fact, we continue to expect modest growth overall for [the fourth quarter].”

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