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ECONOMIC OUTLOOK: NAFTA & Bank of Canada’s Next Announcement

Uncategorized | David | September 3, 2018

ECONOMIC OUTLOOK: NAFTA & Bank of Canada’s Next Announcement

The Bank of Canada has another rate decision this week Wednesday to discuss the current economic outlook as well as make any announcements regarding their Prime lending rate. My most constant conversation with clients is always: “What’s happening with interest rates?”

I have been gauging my advice off the recent (or lack of) NAFTA discussions. We’ve all watched as protectionist policy President Donald Trump has made decisions for the betterment, in his mind, of the US and complete disregard for any past agreements with other countries. Mexico having an election this past July and voting in a new President has been good timing for their country as the motivated Obrador works to strengthen a very heated US/Mexico relationship. Unfortunately, it looks like Prime Minister Trudeau has been left out of the new conversations and Trump has repeatedly voiced he would gladly shred NAFTA because it has been a bad deal for the US. The common-sense voice in my head tells me that Trump is going to make as many side deals with Mexico as possible on trade and leave Canada to pick up the scraps. Mexico has much more room to gain by making trade deals here and there that would oust Canada’s current trade relationships with the US, of which we Canadians have been so heavily reliant. If I’m getting in the mind of “deal making” Trump – I’m thinking I can barter a hell of a lot more with Mexico, maximizing profits from trade obtaining as much as possible on sale and then move over to Canada with the leftovers.

I’m yet to see our current Canadian government, or even one’s past, expand trade relations out to the rest of the world to shop our steel, lumber and oil & gas. As of 2017 76.7% of our exports were shipped to the US and 99.1% of our crude oil is exported to the US. The TransCanada pipeline COULD have been a step in the right direction to fix this problem, opening our oil & gas exports to Asia or Europe but this stalled and sideways project now only amplifies (if I’m Trump) that we have no other options but to take what we can get. Why the Liberal’s decided to spend $4.5B buying this project and in to a failing industry is beyond me. I see Canada suffering short-term and long-term, but the government needs to get on with it and start exporting or shift focus entirely to the new age of energy.

Seeing above makes me very nervous for the Canadian economy and as a result would be shocked if Wednesday’s rate announcement was another move upward. In my opinion, if the above isn’t fixed we would sooner see Bank of Canada decrease Prime rates affecting Variable mortgages as they did in the oil & gas crises a few summers ago. Variable rate mortgages are still as low as 2.70% and range up to 3.45% depending on if the mortgage is insured, not insured, or a rental property. 5 Year Fixed rate mortgages start at 3.44% and climb up to 4.14% on the highest side. There are huge savings advantages in choosing Variable and accelerating your mortgage, this has been our constant strategy over the past decade and it’s worked out very well for our client base.

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