Speaker 1: You're listening to Taking Stock with Pim Box and Kathleen
Speaker 1: has on Bloomberg Radio, a live broadcast today as we
Speaker 1: broadcast live from Bloomberg World Headquarters at the fourth Annual
Speaker 1: Canadian Fixed Income Conference sponsored by National Bank of Canada
Speaker 1: Financial Markets. The health of the Canadian economy, it's a
Speaker 1: big question for developed nations around the world. Of central
Speaker 1: banks except for the federal reserves, still seem to be
Speaker 1: looking at more interest rate cuts, and investors wonder where
Speaker 1: to put their money among their many choices. Joining us
Speaker 1: now as Stefan Mariani's chief economist and strategist at National
Speaker 1: Bank of Canada and National Bank Financials defend, welcome, nice
Speaker 1: to have terrific conference today. We're learning a lot about
Speaker 1: Canada and so are our listeners, but mostly kind of
Speaker 1: some different comments we've had today about the Canadian economy
Speaker 1: that it is uh, that it is not, that is
Speaker 1: still weak at the employment rate still around seven percent,
Speaker 1: kind of not too much progress since the Great Recession
Speaker 1: in a financial crisis. What do you see for the
Speaker 1: Cannadian economy now? Lackluster growth if you look at the
Speaker 1: national average, but that masks tremendous regional divergences. For example,
Speaker 1: we have three provinces that presented today Quebec, BC and Ontario.
Speaker 1: They have a good fiscal stands balanced budget or or
Speaker 1: surplus is so uh that says a lot. If we
Speaker 1: were weak across the board, you wouldn't have this this, this,
Speaker 1: this type of dynamics. So clearly regional divergence. Some countries
Speaker 1: are growing above potential, some below, but obviously with the
Speaker 1: massive drop in oil prices, oil producers are dragging down
Speaker 1: the national average. If that's the case, then why hold
Speaker 1: that overnight lending rate to just a half a percent
Speaker 1: at the Bank of Canada If it's really not as
Speaker 1: weak as many people speculate. I think that from the
Speaker 1: bank again at the standpoint, I mean they need to
Speaker 1: look at the national average. Obviously, Uh, they managed their
Speaker 1: national average and uh for the other provinces, Uh, they
Speaker 1: can put in place some of their fiscal stimulus if needed.
Speaker 1: So I take from a bank account of perspective. There's
Speaker 1: also the realization that so is it a global malaise
Speaker 1: with the commodity prices, and as all of the central
Speaker 1: banks would argue, they probably want a cheaper currency. So
Speaker 1: I think of for all of these reasons, the bank
Speaker 1: cats keeping rate slow, and then macro predential policies are
Speaker 1: being put in place in cant to slow the housing sector,
Speaker 1: et cetera. So the exchange rate weaker. Looney, we just
Speaker 1: had a guest too said it, it hasn't done that
Speaker 1: much yet to stimulate Canadian exports to stimulate Canadian manufacturing.
Speaker 1: Is that true? And if so, why I would disagree
Speaker 1: on that Because exports are back to the pre recession peak,
Speaker 1: non energy exports. That is, so we've seen a substantial
Speaker 1: rebound um. What we haven't seen yet is a currency
Speaker 1: that entices corporations to start investing again. It's as if
Speaker 1: corporations are still uh shocked by what happened in two
Speaker 1: thousand or twelve or thirteen where the currency and went
Speaker 1: above parody, so they don't have good visibility on that.
Speaker 1: But I would assume that if the currency stays in
Speaker 1: the one dirty range one one thirty five range for
Speaker 1: a little while longer, we might see more business investment,
Speaker 1: and businesss investment would create more capacity that would help
Speaker 1: us build more on exports. So it's just that it's
Speaker 1: not that we haven't seen to pick up an export.
Speaker 1: We haven't seen a rebound as uh forceful as we
Speaker 1: normalcy would if you expected more corporate activity by non
Speaker 1: Canadian investors in Canada. Since the looney has the Canadian
Speaker 1: currency has declined by about thirty going back about a
Speaker 1: year and a year and a half. Why why are
Speaker 1: there not more foreign buyers, Let's say, have Canadian assets.
Speaker 1: Canadian companies have been going on a buying released in
Speaker 1: the United States to a certain extent, foreigner has been
Speaker 1: buying Canadian Uh, anything other than the houses. No, but seriously,
Speaker 1: you've seen that situation there. I think with the drop
Speaker 1: in commodity prices, right, I mean a lot of the
Speaker 1: foreign purchases were in the energy sector. So at this
Speaker 1: point in time we were seeing perhaps we we could
Speaker 1: see more ferns coming back with the currency at one dirty.
Speaker 1: Now we are becoming more competitive for sure. Uh. So
Speaker 1: I think that's a story that might unfold in the
Speaker 1: next few years or next couple of years or so. So. Um,
Speaker 1: we've had a big route in global bond markets. How
Speaker 1: is this washing over the Canadian bar market? Uh? Because
Speaker 1: we're unlikely, uh to the bank hands unlikely to hike
Speaker 1: interest rates anytime soon. Uh, the route won't be as
Speaker 1: big at the short end and the curve. One thing
Speaker 1: that we need to watch the mccinnian perspective, if the
Speaker 1: five year bond yield was to rise by a hundred
Speaker 1: business points or so, that would significantly reduce your attractive
Speaker 1: if the housing sector, so that could undermine your canting economy.
Speaker 1: So if you want, there's not gonna be any tightening
Speaker 1: by the bank candor per se, but we need to
Speaker 1: be wary of a steepening of the global yield curve
Speaker 1: that would impact a caning housing sector. Do you believe
Speaker 1: that the new government of a Prime Minister Trudeau that
Speaker 1: the stimulus packages and proposals will in fact increase economic
Speaker 1: growth because right now it's a sluggish what GDP one
Speaker 1: point one percent? Yeah. I think that's really important because
Speaker 1: that actually might entice the private sector to invest a
Speaker 1: bit more if they believe that potential output will be
Speaker 1: growing faster down the road. I think given the fact
Speaker 1: that fifteen percent of Kansas GP relate is related to construction,
Speaker 1: we cannot afford to have that sector UH lose too
Speaker 1: much UH strength in the next the next few years.
Speaker 1: I think the fiscal stimulus is welcome used and if
Speaker 1: it spreads to other countries, maybe the US, then we
Speaker 1: should see a rebound in Canadian road and commodity prices.
Speaker 1: I want to thank you very much for spending time
Speaker 1: with us. Stefan Marion. He is the chief economist and
Speaker 1: strategist for National Bank of Canada and the National Bank
Speaker 1: of Financial giving us his perspective on the Canadian economy.
Speaker 1: We're broadcasting live from the fourth Annual Canadian Fixed Income Conference.
Speaker 1: This is Bloomberg