How did the Canadian economy fare in 2019? And what this means for the self-storage industry in 2020.

2019 was marked by speculations and fears of a looming recession. Contrary to what many thought would happen, the Canadian economy did well in the last calendar year. When other countries implemented rate cuts the Bank of Canada held, our housing markets rebounded, and a surprising boost in business investment in the second half of 2019 points to higher than expected economic productivity.

Having said that, global trade wars, climate change and the prolonged economic downturn in Alberta do create concerns.

Steady interest rates

In December of 2019, Bank of Canada Deputy Governor, Timothy Lane, said inflation in Canada remains on target and the job market is strong, both points that indicate sources of growth. He also said that despite the global turmoil surrounding trade wars between the USA and China, the Canadian economy remains resilient, although not immune.

Even though the US Federal Reserve cut its rate three times in 2019, the Bank of Canada did not follow. Lane said there is no reason for the Bank of Canada to mimic the moves down south and stated, “…the experience of the past decade shows that Canada and the United States have followed different roads, reflecting differences in our economic conditions.” Naturally, Canada’s housing markets in the country’s biggest cities enjoyed comfortable rebounds as a result.

Business investment numbers

Concerns earlier in the year circled around low business investment numbers, seemingly pointing to the fact that a recession may be just around the corner. Much to the surprise of many, business investment spending in Canada rose 2.6% in the third quarter of 2019, which was much stronger than expected. Solid growth in this area has led the Bank of Canada to revise its data upward.

Global trade wars

The ongoing trade wars between the US and China and the related uncertainty that comes along with them still weighs on the global economy. As we develop future forecasts, this is one of the biggest sources of risk. In Canada, exporters have come to realize they cannot simply shift contracts over to the next biggest importer and exporter (China). While we must take trade seriously and continue to move forward, it will take time to match previous numbers.

Climate change and the Canadian economy 

For some, it may seem odd to link these two thoughts together but the risk of climate change on the financial stability of our country is a very real concern. The Bank of Canada has announced its commitment to develop new models designed to understand the impact of climate change on the Canadian economy including physical risks of intensified weather, financial risks of stranded assets, and wider-ranged risks to the system because of greater volatility and unpredictability.

Alberta’s ongoing struggle

Since the oil price crisis of 2014, the Alberta economy has been battling a downward spiral. Knowing very well that, as an economy, the province must determine how to diversify, new companies have begun to pop up in different industries that do not rely on the oil sector. Having said that, many lag in up-to-date technology and digitization, so their speed of advancement and ultimate success is lacking. Kevin Charmichael, a Financial Post national business columnist, says Alberta may very well need a catalyst (in other words, public assistance and a financial injection of some kind) in order to pull out of this lingering downturn.

Key questions for 2020

1.    Will the Canadian economy grow in 2020?

As a result of positive growth factors in the second half of 2019, the overall economic outlook for 2020 is improving slightly putting the overall forecasted growth rate of the Canadian economy at 1.7% (up from 1.5% in 2019) according to the Business Development Bank of Canada.

2.    Is our economy more productive than we thought? Has the economy built up more capacity to grow faster without stoking inflation (which is what the Bank of Canada cares most about)? If the Canadian economy is, in fact, stronger than previously forecasted, will this push the Bank of Canada to raise interest rates?

The current Governor of the Bank of Canada, Stephen S. Poloz, will step down in June of 2020, meaning that the Bank must appoint a new Governor. Many experts who believe interest rates will indeed rise in 2020, forecast that the hikes will not commence until the second half of the year, putting this responsibility on the new Governor. If the Bank of Canada determines inflation is a problem, it is likely we will indeed see rates increase. While this is certainly possible, the Bank of Canada is still aware of the risk this poses. Given the fact that Canadian households hold a significant amount of debt relative to other countries, they are extremely sensitive to changes in interest rates. If rate increases loom ahead, it’s likely the Bank of Canada will implement them in very small increments in order to evaluate the effect.

3.    Will the real estate market continue to rise?

In Canada’s major cities, the real estate market along with residential investment are expected to gain ground, albeit at a slow and steady pace. Strength and stability in this market pave the way for continued growth in the self-storage industry, particularly if the Bank of Canada keeps its key interest rate at 1.75% for the better part of 2020.